UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2001

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to ________

Commission File Number: 0-30235

EXELIXIS, INC.
(Exact name of registrant as specified in its charter)

Delaware 04-3257395
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

170 Harbor Way
P.O. Box 511
South San Francisco, CA 94083
(Address of principal executive offices, including zip code)
(650) 837-7000
(Registrant's telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock $.001 Par Value per Share
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statement
incorporated in reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

As of January 31, 2002, there were 56,152,284 shares of the registrant's common
stock outstanding. As of that date, there were approximately 46,708,953 shares
held by non-affiliates of the registrant, with an approximate aggregate market
value of $572,184,674 based upon the $12.25 closing price of the registrant's
common stock listed on the Nasdaq Stock Market on January 31, 2002.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the registrant's definitive proxy statement to be filed with
the Securities and Exchange Commission pursuant to Regulation 14A, not later
than April 30, 2002, in connection with the registrant's 2002 Annual Meeting,
are incorporated herein by reference into Part III of this Report.

EXELIXIS, INC.

FORM 10-K

INDEX

Page
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PART I

Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 23
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 23

PART II

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . 24
Item 6. Selected Consolidated Financial Data. . . . . . . . . . . . . . 25
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . 26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. . . 34
Item 8. Consolidated Financial Statements and Supplementary Data. . . . 36
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure. . . . . . . . . . . . . . . . . . . . 61

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. . . . . . . 63
ITEM 11. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . 63
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 63
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . . . 63

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 63

PART I

The following discussion and analysis contains forward-looking statements.
These statements are based on our current expectations, assumptions, estimates
and projections about our business and our industry, and involve known and
unknown risks, uncertainties and other factors that may cause our or our
industry's results, levels of activity, performance or achievement to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied in or contemplated by the forward-looking
statements. Words such as "believe," "anticipate," "expect," "intend," "plan,"
"will," "may," "should," "estimate," "predict," "potential," "continue" or the
negative of such terms or other similar expressions, identify forward-looking
statements. In addition, any statements that refer to expectations, projections
or other characterizations of future events or circumstances are forward-looking
statements. Our actual results could differ materially from those anticipated in
such forward-looking statements as a result of several factors more fully
described under the caption "Risk Factors" as well as those discussed elsewhere
in this document. These and many other factors could affect the future
financial and operating results of Exelixis. Exelixis undertakes no obligation
to update any forward-looking statement to reflect events after the date of this
report.

ITEM 1. BUSINESS

OVERVIEW

We believe that we are a leader in the discovery and validation of high-quality
novel targets for several major human diseases, and a leader in the discovery of
potential new drug therapies, specifically for cancer and other proliferative
diseases. Our primary mission is to develop proprietary human therapeutics by
leveraging our integrated discovery platform to increase the speed, efficiency
and quality of pharmaceutical product discovery and development.

Through our expertise in comparative genomics and model system genetics, we are
able to find new drug targets that we believe would be difficult or impossible
to uncover using other experimental approaches. Our research is designed to
identify novel genes and proteins expressed by those genes that, when changed,
either decrease or increase the activity in a specific disease pathway in a
therapeutically relevant manner. These genes and proteins represent either
potential product targets or drugs that may treat disease or prevent disease
initiation or progression.

Specifically in cancer, the remarkable evolutionary conservation of the
biochemical pathways strongly supports the use of simple model systems, such as
fruit flies, nematode worms, zebrafish and mice, to identify key components of
critical cancer pathways that can then be targeted for drug discovery. We
expect to develop new cancer drugs by exploiting the underlying "genetic
liabilities" of tumor cells to provide specificity in targeting these cells for
destruction, while leaving normal cells unharmed. We have discovered and are
further developing a number of small molecule drug targets in addition to
monoclonal antibody drug targets. Molecules directed against these targets may
selectively kill cancer cells while leaving normal cells unharmed, and may
provide alternatives to current cancer therapies.

While our proprietary programs focus on drug discovery and development, we
believe that our proprietary technologies are valuable to other industries whose
products can be enhanced by an understanding of DNA or proteins, including the
agrochemical, agricultural and diagnostic industries. Many of these industries
have shorter product development cycles and lower risk than the pharmaceutical
industry, while at the same time generating significant sales with attractive
profit margins. By partnering with companies in multiple industries, we believe
that we are able to diversify our business risk, while at the same time
maximizing our future revenue stream opportunities.

We have active commercial collaborations with several leading pharmaceutical and
biotechnology companies. In 2001, we established a second, broader alliance with
Bristol-Myers Squibb Company, or BMS, involving small molecules directed against
cancer targets. As part of this collaboration, we in-licensed a Phase II cancer
compound, DEAE Rebeccamycin, from BMS. Also in 2001, we established a
collaboration with Protein Design Labs to develop monoclonal antibodies directed
against cancer. Our ongoing agricultural industry collaborations include Aventis
CropScience LLC (through our joint venture Agrinomics LLC), Bayer Corporation
(through our joint venture Genoptera LLC) and Dow AgroSciences LLC. These
collaborations provide us with substantial funding, including licensing fees,
research funding and, in most cases, milestone payments when specific objectives
are met, in addition to royalties if our partners successfully develop and
commercialize products. In addition, several of these collaborations have
included the acquisition of strategic technologies. During 2001, we also
entered into several combinatorial chemistry collaborations with Cytokinetics,
Inc., Elan Pharmaceuticals, Inc., Scios Inc. and Schering-Plough Research
Institute, Inc. that provide licensing fees and payments for delivery of
specified numbers of compounds meeting certain quality-assurance criteria.
In addition to our commercial collaborations, we have relationships with other
biotechnology companies, academic institutions and universities that provide us
access to specific technology or intellectual property for the enhancement of
our business. These include collaborations with leading biotechnology product
developers and solutions providers, among them Affymetrix Inc., Genemachines,
AVI BioPharma, Inc., Silicon Genetics, Galapagos NV, Genomics Collaborative Inc.
and Accelrys, Inc.

We have also used acquisitions to strategically position and advance our
leadership as a genomics-based drug discovery company. In May 2001, we acquired
Artemis Pharmaceuticals GmbH, a privately held genetics and functional genomics
company, in a stock-for-stock transaction valued at approximately $24.2 million.
Located in Cologne and Tubingen, Germany, Artemis is focused on the use of
vertebrate model genetic systems such as mice and zebrafish as tools for target
identification and validation. We co-founded Artemis in 1998 to expand our
access to vertebrate model system technologies. The two companies have worked
closely together since that time, and the acquisition creates a single,
worldwide drug discovery company with a broad array of biological systems and
other tools for rapid target identification and validation. This acquisition is
a continuation of Exelixis' strategy to optimize all aspects of the drug
discovery process from target identification to clinical development.

In December 2001, we acquired Genomica Corporation, a publicly-traded
bioinformatics company, in a stock-for-stock transaction valued at $110.0
million. The transaction was structured as a tender offer for 100% of Genomica's
outstanding common stock to be followed by a merger of Genomica with a
wholly-owned subsidiary of Exelixis. The exchange offer was closed on December
28, 2001, and the subsequent merger completing the transaction occurred on
January 8, 2002. We believe that Genomica's substantial cash and investments
will significantly enhance our ability to move our drug discovery programs
forward, and that their software may be a useful tool over the next several
years that may be used to manage human data obtained during the clinical
development of our compounds.

INDUSTRY BACKGROUND

Conventional chemical drug discovery involves a series of steps, many years of
work and substantial resources. Initially, scientists identify potential
molecular targets for therapeutic intervention. These targets must then be
validated, or demonstrated to be able to affect the disease biochemistry. Next,
the validated target is put through a series of assays, or tests, to identify
chemical compounds that would modulate the activity of the target. Once
chemical compounds that modify the activity of the target are identified, they
must then be iteratively optimized through synthetic chemistry processes. After
several iterations, the resulting compounds are tested in animal models of
disease, and selected lead compounds are then considered for preclinical
development.

Many of the principal products of the pharmaceutical and biotechnology
industries were developed without knowledge about the underlying genetic and
biochemical causes of disease, or without knowledge of how the drug works in the
body. This limited knowledge about the target or mechanism of action of the
product can lead to somewhat random and/or suboptimal product candidates.
Similar issues are problems for the agrochemical, agricultural and diagnostic
industries. As a result, product development in all of these industries is
costly, time consuming, inefficient and characterized by high failure rates.
Many companies have turned to genomics technologies, primarily for DNA sequence
information, to help address these problems with respect to the selection of
molecular or gene-based targets.

Despite significant investment in genomics to date and the recent availability
of the human genome sequence, there has not been appreciable improvement in
selecting high quality molecular targets for drug development. Notwithstanding
the tremendous advances in providing genomic data, it is clear that a rational
selection of molecular targets requires more detailed or specific knowledge
about the function of genes and their encoded proteins as well as their
interaction with other components of signaling networks, or biochemical
pathways. Since the complete human sequence as well as the sequences of other
commercially important genomes are now available, we believe that the
competitive advantage for companies going forward will be the ability to
identify the small number of significant gene targets, within the very large
number of genes, the modulation of which will result in a commercially valuable
outcome. By integrating our superior ability to select biological targets with a
state-of-the-art drug discovery platform, we expect our platform and biological
insights to produce novel targets and potentially innovative products.

OUR STRATEGY

Our business strategy is to leverage our biological expertise and integrated
discovery capabilities to improve the speed, efficiency and quality of the
discovery, development and commercialization process for human therapeutics and
other products, and includes the following key elements:

MAINTAIN AND AUGMENT BIOLOGICAL EXPERTISE: Our biological expertise is a key
competitive advantage that we believe applies throughout all aspects of
collaborative relationships and our drug discovery efforts. We are committed to
continually enhancing our technology platform through building, in-licensing or
acquiring technologies that complement our fundamental knowledge and
capabilities as well as through protecting our proprietary technologies with
patents and trade secrets.

SELECTIVELY DEVELOP THERAPEUTIC PRODUCTS: We have invested and plan to continue
to invest significant funds in discovering and developing proprietary products,
particularly in the area of cancer. We have committed substantial resources to
building a world-class drug discovery effort that is integrated with our unique
understanding of the biological basis of disease, and expect to generate a
pipeline of function-derived, novel drugs to move into clinical trials.

LEVERAGE STRATEGIC COLLABORATIONS: We have established and intend to continue
to pursue commercial relationships and key partnerships with major
pharmaceutical, biotechnology and agrochemical companies based on the strength
of our technologies and biological expertise and capabilities. These
collaborations provide us with a committed revenue stream in addition to
opportunities to receive significant future payments, if our collaborators
successfully develop and market products that result from our collaborative
work. In addition, many of our collaborations have been structured
strategically so that we gain access to technology to more rapidly advance our
internal programs, saving both time and money, while at the same time retaining
rights to use the same information in different industries.

ACQUIRE PRODUCTS AND TECHNOLOGIES OPPORTUNISTICALLY: We continually evaluate
opportunities that may provide us with key personnel, intellectual property,
technologies and products that will enhance our development capabilities. We
believe that through the acquisition of strategic products and technologies we
will be able to create additional value in our internal and collaborative
programs. In addition, we believe that many of these strategic relationships
will permit us to obtain co-development or other rights to products identified
or developed in such collaborative relationships as a result of our efforts.

INTEGRATED TECHNOLOGIES

We have developed an integrated discovery platform that includes proprietary
technologies and know-how. This platform includes model system genetics and
comparative genomics, libraries of modified model organisms, specialized
reagents, assay biology, informatics databases and software, mechanism of action
technology, automated high-throughput screening, a growing compound library in
excess of 1,500,000 small molecule compounds and extensive
medicinal/combinatorial chemistry capabilities. Using this integrated platform,
we are able to effectively and rapidly identify novel targets and develop
proprietary compounds. We believe that a key competitive advantage is the
breadth of the platform that we have established as well as in our ability to
apply the tools of modern biology and chemistry to address commercially relevant
questions.

MODEL SYSTEM GENETICS AND COMPARATIVE GENOMICS. Model system genetics is
the study of simple biological systems to discover genes, proteins and
biochemical pathways that may be useful in the development of new pharmaceutical
or agricultural products. Our primary model systems are the fruit fly, D.
melanogaster, the nematode worm, C. elegans, the zebrafish, D. rerio, Ustilago
maydis, Arabidopsis thaliana and the micro-tomato, Lycopersicon esculentum.
Empirical evidence has provided us with accurate benchmarks for applying
biological and biochemical discoveries from these model systems to more
developed organisms, such as humans or commercial crops.

Model System Lifecycle Selected Applications
- ----------------------- --------- -----------------------------------------------------------
Drosophila melanogaster 10 days Cancer, angiogenesis, diabetes, inflammation, CNS disorders
- ----------------------- --------- -----------------------------------------------------------
C. elegans 3 days Diabetes, Alzheimer's disease
- ----------------------- --------- -----------------------------------------------------------
D. rerio 90 days Angiogenesis, cancer, inflammation
- ----------------------- --------- -----------------------------------------------------------
Arabidopsis thaliana 10 days Plant traits
- ----------------------- --------- -----------------------------------------------------------
Lycopersicon esculentum 98 days Nutraceuticals
- ----------------------- --------- -----------------------------------------------------------
Ustilago maydis 10 days Plant pathology
- ----------------------- --------- -----------------------------------------------------------

Scientists have used these organisms as research tools for several decades. We
have industrialized the analysis of these model systems by developing a suite of
proprietary tools and reagents that allow us to perform systematic genetic
analyses at a larger scale and with substantially greater speed than otherwise
are currently available. Among other proprietary tools, we have exclusively
licensed the U.S. patent covering P-element, which is a genetic element
essential for performing modern fruit fly genetics.

Comparative genomics means the use of data learned from one biological system
applied to another system. For example, the use of the angiogenesis pathway
data learned from a zebrafish can be applied to studying human angiogenesis.
Application of comparative genomics relies on the use of our extensive libraries
of model organisms in addition to the proprietary databases of information and
informatics methods generated by our scientists. Each of our model systems has
unique advantages that can be applied in different ways to address commercially
relevant questions in a rapid manner. Our expertise allows us to leverage
knowledge across species and to select the best model systems for a particular
commercial application.

Proprietary Model Organism Libraries. We have produced and maintain as key
strategic assets populations of well-characterized genetically modified organism
libraries, and the process for their production and use is a core technology.
We have libraries of these organisms that have been modified and catalogued in a
systematic fashion, so that comprehensive pairwise breeding can allow us to test
the effects of gene alteration or modulation on a specified disease condition.
Through the use of these libraries, we are able to rapidly assess the effect of
increasing or decreasing the output of each gene in the model organism. The
availability of these assets significantly enhances the efficiency of research
directed at drug or agricultural product target identification, as our model
systems permit results to be obtained in a period of weeks or months from the
inception of the research effort. We believe that our ability to rapidly and
selectively move from an alteration in a gene directly to the identification of
validated targets that can reverse or enhance the effects of that alteration is
an extremely powerful, rapid and direct route to new pharmaceuticals and
agricultural products.

High-throughput Screening (HTS) Assays for Target and Lead Discovery. We
also develop proprietary genetic, biochemical and cell-based assays for use in
screening for potential targets, proteins and products. An HTS assay is a test
that may include a biochemical reaction or cell-signaling event that is readily
measured, miniaturizable to a specific format and subject to automation. HTS
assays must meet these criteria in order to address the large numbers of
experimental measurements that we have identified in order to screen our
extensive collection of compounds. We believe that we have also established
world-class expertise in gene cloning, protein expression, scale-up fermentation
and protein purification necessary to meet these needs. Genetic assays are used
to measure the ability of a particular gene or protein to change or regulate the
disease pathway of interest, which leads to the identification of disease
pathway genes as well as those genes that may be product targets. The
development of biochemical assays requires the production of target gene
products (proteins) in sufficient quantity to support hundreds of thousands of
individual measurements. Cell-based assays may also require genetically
engineered cells that over-express the target gene of interest.

Informatics. We have state-of-the-art informatics tools, many of which are
proprietary, and expertise that have been developed as an integral part of our
model systems genetics and comparative genomics capabilities. These tools
include a broad range of applications such as: tracking samples and harvesting
data in the context of high-throughput, automated data collection systems;
creating discovery platforms for storing, managing and querying large data sets;
and analysis, curation and prediction of function relative to compounds and
macromolecules. We believe that these tools are essential to developing our
target and drug discovery pipelines and represent a substantial competitive
advantage. Specific examples include extensive databases and software tools
related to: DNA sequencing and gene discovery; generation of comprehensive
genetic knockout collections; functional identification and classification of
novel protein sequences; and design, characterization and selection of compound
libraries. Our informatics capabilities provide an extensive and readily
accessed informational base for analyzing and comparing data produced using our
core technologies, allowing us to optimize and prioritize among potential
targets and, downstream, drugs directed against those targets.

Mechanism of Action Technology. Utilizing our extensive discovery
technologies, we have also developed a proprietary process to quickly determine
the genes and proteins with which chemical compounds such as pharmaceuticals or
agrochemicals interact to produce their effect. Understanding physiological
activity of a compound, or the mechanism of action of the physiological target,
can be of significant value to pharmaceutical and agrochemical companies for
several reasons. For example, many companies have compounds that have
demonstrated commercially useful biological activity but are too complex to
manufacture cost-effectively or have a secondary physiological target that
produces an unacceptable toxicity or other side effect profile. By identifying
the primary gene or protein with which a compound interacts, similar or related
compounds can be designed that produce the desired activity and that overcome
the manufacturing or other limitations of the original compound. This
proprietary process addresses a key bottleneck in the development of
pharmaceutical and agrochemical products.

Sequencing, Proteomics and Transcriptional Profiling. We have built or
in-licensed significant expertise in sequencing, proteomics and transcriptional
profiling. Our sequencing capacity is currently 1.5 million lanes per year,
scalable to ten million lanes in our current facility. We have state-of-the-art
robotics, advanced laboratory information management systems, polymerase chain
reaction, or PCR, mass spectrometry and gene cloning expertise as well as a
significant proteomics effort to complement the existing proficiency in genetic
target discovery. We have brought in several different methods of
transcriptional profiling, both to validate our biological target discovery and
to screen for toxicities.

HTS, Combinatorial and Medicinal Chemistry. Our gene discovery platform
provides novel, biologically validated therapeutic and agricultural targets
without bias towards conventional target classes. Thus, in addition to targets
that are known in the industry to be "druggable," such as protein kinases,
proteases and g-protein coupled receptors, or GPCRs, many other novel classes
are identified in the genetic screens that may require specialized assay
technology. We focus on finding diverse drug discovery targets in multiple
assay formats. We have established a high-throughput screening laboratory in
which we conducted more than 20 target screens against millions of compounds in
2001. Through our relationship with BMS, we have gained access to their
proprietary combinatorial hardware and software systems. We have enhanced the
performance and throughput of this system through integration of second
generation components and are currently synthesizing hundreds of thousands of
compounds per month. In addition, we have built extensive capabilities into our
high-throughput drug discovery platform, including crystallography, cell
biology, medicinal chemistry, ADME, pharmacokinetics, pharmacodynamics,
pharmacology and chemi-informatics, to potentially identify and develop
innovative cancer drugs.

Extensive Compound Library. We have rapidly assembled a growing collection
of over 1,500,000 highly diverse, quality controlled, drug-like, small molecule
compounds for lead discovery by high-throughput screening. These compounds are
derived from a variety of sources, including external vendors and internal
combinatorial synthesis. Compounds were identified for acquisition based on
structural complexity and diversity, purity and price. We used advanced
chemi-informatics to refine the selection of libraries from an in silico or
computer-generated perspective. In excess of six million compounds from a
diverse network of international sources were analyzed and filtered
computationally to select compounds of interest based on both positive and
negative selection criteria, including physiochemical parameters consistent with
"drug-like" molecules and structural elements that may be toxic or rapidly
metabolized. Over one million compounds were selected for acquisition using
this analysis. In addition, our proprietary combinatorial synthesis platform
from BMS was used in the synthesis of over 100,000 compounds. We are committed
to the continued expansion of our compound library to increase the frequency and
quality of highly active lead compounds.

Collaborative Programs

An integral part of our strategy is to focus on strategic collaborations within
different market segments. Based on the belief that our integrated discovery
program can be applied to address opportunities in any market whose products can
be enhanced by an understanding of DNA or proteins, we are able to address a
variety of markets, including pharmaceuticals, agrochemicals, diagnostics,
biotechnology, animal health, pesticides, crop improvement, livestock
improvement and industrial enzyme products. Many of these industries have
shorter product development cycles and lower risk than the pharmaceutical
industry, while at the same time generating significant sales with attractive
product margins. By addressing these markets in combination with our partners,
we are able to establish a substantial revenue stream through both committed
research funding and milestone payments, while at the same time potentially
reducing the time to market for royalty-bearing products. In addition, because
the various industry product cycles and development risks are different, we
anticipate that we will be able to minimize our overall risk exposure. To date,
we have delivered multiple targets to our collaborators that are in the early
stages of product research in their laboratories.

Human Pharmaceutical Collaborative Research Programs

CANCER. In 2001, Exelixis established two important collaborative programs that
significantly augment our ongoing cancer therapeutic discovery programs. We are
working with Protein Design Labs to discover and develop humanized antibodies
for the diagnosis, prevention and treatment of cancer. The collaboration
utilizes our model organism genetics technology and Protein Design Labs'
antibody, manufacturing and clinical development expertise with the goal of
creating and developing new antibody drug candidates. During 2001, we delivered
multiple targets to Protein Design Labs that met stringent criteria for
demonstrating modulation of cancer-related cell growth pathways in model
organisms and expression in a variety of normal and tumor tissues. We are also
working with BMS in a second collaboration and licensing agreement to identify a
new generation of cancer drugs that selectively destroys cancers that harbor
defects in tumor suppressor gene pathways. Each party has small molecule drug
development rights to selected targets identified in the collaboration. In
addition, as part of the collaboration, we received an exclusive worldwide
license to develop and commercialize a selected analogue of the anticancer
compound, DEAE Rebeccamycin. Phase I trials of DEAE Rebeccamycin have been
completed and demonstrated an acceptable safety profile. In ongoing Phase II
trials, being conducted by the National Cancer Institute, the compound has
demonstrated activity against some tumor types.

METABOLIC DISEASES. Metabolic diseases include such important conditions as
cardiovascular diseases, diabetes and obesity, which represent significant unmet
medical needs. In 2001, we began to develop an internal program focusing on
metabolic diseases in anticipation of the conclusion of our sponsored research
program with Pharmacia Corporation (Pharmacia), which formally ended in February
2002 by mutual consent. In that collaboration, we have identified and received
milestone payments for several targets that may be useful in developing products
to optimize the levels of both cholesterol and fat in the bloodstream, and we
have identified several targets that may be useful in developing products to
control Type II diabetes. Pharmacia will retain exclusive rights to pursue
targets selected prior to February 2002, subject to the payment of milestones to
us, and after that date, we will have the exclusive right to pursue all other
targets we identify. Following termination, Pharmacia has no remaining funding
obligations to us, with the exception of royalties payable on products developed
against selected targets.

CNS DISORDERS. CNS disorders include cognitive disorders including Parkinson's
disease, depression, schizophrenia and Alzheimer's disease. In our
collaboration with Pharmacia, which formally ended in February 2002, we were
applying our genetics technologies to understand the causes of Alzheimer's
disease, a progressive neurological disease that results in the loss of
cognitive functions, including memory, and to determine how to stop or reverse
the progression of the disease. As a result of genetic screens performed to
date, Pharmacia has accepted a number of targets for which we have received
milestone payments and may receive royalties in the future, including a
particular target that may reduce the formation of structural abnormalities that
are associated with Alzheimer's disease.

PHARMACEUTICAL MECHANISM OF ACTION PROGRAM. BMS provided us with a number of
pharmaceutical compounds that have interesting biological activity but for which
the molecular target is unknown. We have identified the mechanism of action for
many of these compounds and have submitted them to BMS for further development.
The targets are identified through the analysis of model organisms that are
either resistant or hypersensitive to the biological activity produced by the
compound. Following identification, the targets are confirmed using biochemical
assays. Targets and other components of the signaling pathways are then
identified as candidates for further compound development. The information
regarding these targets provided by our platform strongly supports a conclusion
that modulating these targets leads to desirable biological activity. As a
result, we believe that our partners may actively pursue many of the targets
without further validation. Additionally, since many of the initial compounds
can be used as the basis for developing potentially superior compounds, we
believe that this approach can save as much as two years in "time to market" as
compared to more traditional approaches. The BMS mechanism of action program is
scheduled to expire in September 2002. If the program is not renewed, research
funding support will terminate, but we will continue our right to receive
milestones and royalties for any products developed by BMS against targets
identified under this program.

Agrochemical Collaborative Programs

FUNGICIDES AND HERBICIDES. We are developing fungal and plant model systems,
which we intend to use to identify targets that will potentially lead to the
development of new, more effective fungicides and herbicides. We have entered
into a Mechanism of Action agreement with Dow AgroSciences pursuant to which we
identify targets for specific fungicide and herbicide compounds with unknown
molecular targets. In consideration for research funding, milestone payments
and royalties, if the compounds are successfully developed, Dow AgroSciences
will receive a non-exclusive license to the targets identified by us.

INSECTICIDES AND NEMATICIDES. Recently, the market opportunity for insecticides
has grown tremendously, with the most recent introduction of broad-spectrum
insecticides for all uses selling $700 million to $1 billion each year, with
pharmaceutical-like margins. Currently, there are no products that effectively
and safely control nematodes. In collaboration with Bayer, we are applying our
genetics technologies to identify unique targets that may be used to develop
new, more effective, broad-spectrum insecticides and nematicides. As a result of
genetic screens performed to date, we have delivered to Bayer numerous targets
and high-throughput screening assays that may be useful in identifying new
insecticides, for which we have received milestone payments. Under our
collaborative arrangement (through our joint venture, Genoptera), Bayer retains
exclusive rights to insecticides and nematicides for crop protection. We remain
free to conduct research in pesticides other than insecticides or nematicides,
as well as in the development of pest-resistant crops.

PLANT TRAIT DISCOVERY. We have developed plant model systems to identify targets
that may be used to develop crops with superior yield and improved nutritional
profiles. In collaboration with Aventis CropScience through an equally-owned
subsidiary, Agrinomics LLC, we are working to research, develop and
commercialize novel genes found through the proprietary ACTTAG TM gene
expression technology in Arabidopsis thaliana, a plant whose genome has been
fully sequenced. ACCTAG technology represents a method of identifying genes
associated with gain-of-function and loss-of-function phenotypes. In 2001,
Agrinomics characterized and catalogued more than 250,000 lines of Arabidopsis,
identifying nearly its entire genome in less than 18 months and exceeding a key
second-year collaboration milestone. The collection of transgenic Arabidopsis,
which we believe is one of the largest gene libraries for this plant in the
world, has the potential to provide extremely important leads for significant
improvements in the large commercial seed and crop protection market. In
addition, we have developed a platform for producing natural products of
potentially high commercial and industrial value from plants. This "plants as
factories" platform integrates novel trait discovery using genomics, informatics
and high-throughput biochemical analyses with proprietary enabling technologies
in plant gene expression, cell biology and product development.

AGRICULTURAL MECHANISM OF ACTION PROGRAMS. Bayer and Dow AgroSciences have
provided us with a number of agrochemical compounds, which have interesting
biological activity but whose molecular target is unknown. We have identified
the mechanisms of action for many of these compounds and have submitted these
targets to our partners for further development. The targets are identified
through the analysis of model organisms that are either resistant or
hypersensitive to the biological activity produced by the compound. Following
identification, the targets are confirmed using biochemical assays. Targets and
other components of the signaling pathways are then identified as candidates for
further compound development. The information regarding these targets provided
by our technology platform indicates that modulating these targets may lead to
desirable biological activity. As a result, we believe that our partners may
actively pursue many of the targets without further validation. We have a right
to receive milestones and royalties for any products developed by our
collaborators against targets identified under these programs.

Proprietary Programs

Therapeutic Areas

ANGIOGENESIS. Angiogenesis is the formation of blood vessels. The ability to
block the formation of new blood vessels could be used to kill cancer cells by
depriving them of nutrients. Similarly, anti-angiogenic agents can be used to
treat or prevent diabetic retinopathy, macular degeneration and psoriasis.
Products that promote angiogenesis could be used to treat coronary heart disease
and stroke. We have an active program to study the zebrafish and Drosophila
(fruit fly) model systems in order to identify key angiogenic and
anti-angiogenic gene targets and proteins. In 2001, we made progress toward the
goal of identifying a lead compound for potential clinical development as a
treatment for cancer and other proliferative diseases.

CANCER. Cancer is a leading cause of death in developed countries. Cancer is
caused by a number of genetic defects in cells resulting in unregulated cell
growth. We have discovered and are further developing a number of small molecule
drug targets, in addition to monoclonal antibody drug targets, that may
selectively kill cancer cells while leaving normal cells unharmed, and may
provide alternatives to current cancer therapies. By exploiting the underlying
"genetic liabilities" of tumor cells, we have identified numerous targets within
specific cell growth and proliferation regulatory pathways and are in the
process of validating them in cell-based assays. In 2001, we completed more
than 20 high-throughput screens directed against proprietary cancer targets. In
2001, through our cancer collaboration with Bristol-Myers Squibb, we in-licensed
an anticancer compound, DEAE Rebeccamycin, that has completed Phase I trials and
is currently in Phase II trials being conducted by the National Cancer
Institute.

INFLAMMATION. Our inflammation program focuses on the role of the innate immune
system, especially macrophages, in mediating the inflammatory response.
Misregulation of the innate immune system is of central importance in diseases
of inflammation, such as asthma and arthritis. Drosophila display a robust
innate immune response, and their macrophages are regulated by the same effector
molecules and pathways that regulate human macrophages. Unlike vertebrates,
however, they lack an adaptive immune system, which allows for more
straightforward analysis of the innate response. Drosophila is therefore useful
for rapidly identifying prospective targets for treating immunological disease.
Novel targets can also be validated in zebrafish, which has all the immune cell
types of mammals, with the advantage of more rapid analysis. We are working in
collaboration with universities to identify targets that control inflammation
and have identified several targets to date. In 2001, Exelixis and The Institute
of Molecular and Cellular Biology in Strasbourg successfully identified and
characterized the immune deficiency gene, or imd, which is involved in mediating
the innate immune response. The identification of this gene could have
significant implications for developing ways to treat a wide variety of human
inflammatory diseases.

Agriculture

ANIMAL HEALTH. Livestock producers experience significant losses due to disease
and incur significant costs to control insects, parasites and other pests.
Companion animals also represent a significant opportunity for products that
control pests such as fleas, ticks and heartworms. During the course of
conducting research in the area of insecticides and nematicides in our
collaboration with Bayer, we have identified and will continue to identify
targets that may be used to develop animal health products. Under the terms of
our collaboration with Bayer, we remain free to use the technology developed to
pursue animal health opportunities independently or in collaboration with third
parties.

PLANT TRAITS. We have developed plant genetic model systems enabling us to
identify genetic targets to create crops with superior yield and improved
nutritional profiles.

Corporate Collaborations

Our strategy is to establish collaborations with major pharmaceutical,
biotechnology and agrochemical companies based on the strength of our
technologies and biological expertise as well as to support additional
development of our proprietary products. Through these collaborations, we
obtain license fees and research funding, together with the opportunity to
receive milestone payments and royalties from research results and subsequent
product development. In addition, many of our collaborations have been
structured strategically to provide us access to technology to advance our
internal programs, saving both time and money, while at the same time retaining
rights to use the same information in different industries. Our collaborations
with leading companies in the agrochemical industries allow us to continue to
expand our internal development capabilities while providing our partners with
novel targets and assays. Since we believe that agrochemical products have
reduced development time and lower risk, we expect to be able to maximize our
potential future revenue stream through partnering in multiple industries.

In 2001, Bayer accounted for approximately 32% of our revenues, Bristol-Myers
Squibb accounted for approximately 15% of our revenues, PDL accounted for
approximately 6% of our revenues and Pharmacia accounted for approximately 31%
of our revenues.

Bayer Corporation

In December 1999, we established Genoptera LLC, a Delaware limited liability
company, with Bayer Corporation to develop insecticides and nematicides for crop
protection. As part of the formation of this joint venture, Bayer has paid us,
through Genoptera, license fees and research commitment fees of $20.0 million
and will provide eight years of research funding through 2007 at a minimum level
of $10.0 million per year (for a total of $100 million of committed fees and
research support). Bayer owns 60% of Genoptera, and we own the remaining 40%.
We did not make any capital contributions for our ownership interest and have no
obligation to fund future losses. The formation of this joint venture is an
outgrowth of, and replaces, the contractual collaboration first established with
Bayer AG (the corporate parent of Bayer Corporation) in May 1998. Bayer will
pay Genoptera milestones and royalties on products developed by it resulting
from the Genoptera research, and we will pay Genoptera royalties on certain uses
of technology arising from such research.

Either Bayer or Exelixis may terminate the Genoptera research efforts after
eight years. In addition, Bayer may terminate the joint venture or buy out our
interest in the joint venture under specified conditions, including, by way of
example, failure to agree on key strategic issues after a period of years, the
acquisition of Exelixis by another company or the loss of key personnel that we
are unable to replace with individuals acceptable to Bayer.

Bristol-Myers Squibb

In September 1999, we entered into a three-year research collaboration with BMS
to identify the mechanism of action of compounds delivered to us by BMS. We did
not know the identity and function of these compounds, including their field of
activity, prior to their delivery. Under this agreement, the parties agreed to a
non-exclusive cross-license of research technology. We granted BMS the right to
use our proprietary technology covering C. elegans and D. melanogaster genetics,
and in exchange, BMS transferred to us combinatorial chemistry hardware and
software, together with related intellectual property rights, which had been
developed by BMS. The technology received from BMS under this agreement will
expedite the development of our compound discovery capabilities. Under the
agreement, BMS pays us a technology access fee and research support payments, as
well as additional milestones and royalties based on achievements in the
research and commercialization of products.

In July 2001, we entered into a second collaboration with Bristol-Myers Squibb
involving three agreements: (a) a Stock Purchase Agreement; (b) a Cancer
Collaboration Agreement; and (c) a License Agreement. Under the terms of the
collaboration, BMS (i) purchased 600,600 shares of our common stock in a private
placement at a purchase price of $33.30 per share, for cash proceeds to us of
approximately $20.0 million; (ii) agreed to pay us a $5.0 million upfront
license fee and provide us with $3.0 million per year in research funding for a
minimum of three years; and (iii) granted to us a worldwide, fully-paid,
exclusive license to an analogue to Rebeccamycin developed by Bristol-Myers
Squibb, which is currently in Phase II clinical studies for cancer. Planning for
additional clinical studies is currently underway and should be finalized later
in 2002. We also agreed to provide Bristol-Myers Squibb with exclusive rights to
certain potential small molecule compound drug targets in cancer selected by
Bristol-Myers Squibb during the term of the research collaboration.

Protein Design Labs

In May 2001, we entered into a collaboration with Protein Design Labs, Inc. to
discover and develop humanized antibodies for the diagnosis, prevention and
treatment of cancer. The collaboration will utilize our model organism genetics
technology for the identification of new cancer targets, and PDL's antibody and
clinical development expertise to create and develop new antibody drug
candidates. PDL will provide us with $4.0 million in annual research funding for
two or more years and has purchased a $30.0 million convertible note. The five
year note bears interest at 5.75%, and the interest thereon is payable annually.
The note is convertible into our common stock after the first anniversary of the
agreement at a conversion price per share equal to the lower of (i) $28.175 and
(ii) 110% of the Fair Market Value (as defined in the note) of a share of our
common stock at the time of the conversion.

Pharmacia

In February 1999, we established a collaboration with Pharmacia Corporation to
identify targets in the fields of Alzheimer's disease, Type II diabetes and
associated complications of metabolic syndrome, a condition that comprises much
of diabetes, obesity and portions of cardiovascular disease. In October 1999,
this collaboration was expanded to include mechanism of action work designed to
identify biological targets of agents already identified by Pharmacia as having
activity in these fields. Under this agreement, Pharmacia purchased a $7.5
million equity interest, paid us a license fee of $5.0 million, provided ongoing
research support and paid us milestone payments based on target selection and
will pay us royalties in the event that products result from the targets that we
identify.

In July 2001, we announced the termination, effective February 2002, of ongoing
research efforts under this collaboration. We reacquired rights to the research
programs in metabolism and Alzheimer's disease previously licensed exclusively
to Pharmacia. Pharmacia retains rights to targets selected prior to the
reacquisition date, subject to the payment of milestones for certain of those
targets selected, and royalties for future development of products against or
using those targets, but Pharmacia has no other obligations to make payments to
us, including approximately $9.0 million in annual funding that would otherwise
be payable for an additional two years if we had not elected to reacquire rights
to the research in February 2002.

Aventis CropScience

In July 1999, we formed Agrinomics LLC with Aventis CropScience to focus on
research, development and commercialization of products in the field of
agricultural functional genomics. We own a 50% interest in Agrinomics, and
Aventis CropScience owns the remaining 50% interest.

Under the terms of the Agrinomics joint venture agreement, Aventis has agreed to
make capital contributions in cash totaling $20.0 million over a five-year
period. To date, a total of $14.0 million has been made to support Agrinomics'
operations. We contributed the ACTTAG gene activation technology, a collection
of seeds generated using the ACTTAG gene activation technology techniques and
expertise in molecular and cell biology. In addition, we will perform research
work at our Oregon research facility, greenhouses and farm. Aventis CropScience
will provide high-throughput screening, robotics, microarray and bioinformatics
technologies and support and perform research work at its Research Triangle Park
research facility and at other locations.

Dow AgroSciences

In July 2000, we established a three-year research collaboration with Dow
AgroSciences to identify the mechanism of action of herbicides and fungicides
delivered to us by Dow AgroSciences. We do not know the identity and function of
these compounds prior to their delivery.

Under this agreement, we receive access to a collection of proprietary compounds
from Dow AgroSciences that may be useful in our human therapeutic drug discovery
programs.

We expect to identify and validate targets and format assays that will be used
by Dow AgroSciences to develop new classes of fungicides and herbicides. Dow
AgroSciences will pay us research fees as well as milestone payments and
royalties based on achievements in the research and commercialization of these
products.

Chemistry Collaborations

In August, October and December 2001, we entered into collaboration agreements
with Elan Pharmaceuticals, Inc., Scios Inc., Cytokinetics, Inc. and
Schering-Plough Research Institute, Inc., respectively to jointly design custom
high-throughput screening compound libraries that we will synthesize and
qualify. Cytokinetics, Elan, Scios and Schering-Plough each agreed to pay us a
per-compound fee for compounds delivered meeting the acceptance criteria. Each
party has also paid an upfront technology access fee that is creditable towards
the future purchase of compounds. Payments from two of these arrangements were
not received until fiscal year 2002. Revenue recognition of the upfront fees has
been deferred and revenue under these collaboration agreements will generally be
recorded upon delivery of compounds. Each party retains rights to use the
compounds developed and delivered in its own proprietary drug discovery programs
and in its collaborative efforts with third parties.

Biotech Collaborations

We enjoy collaborations with leading biotechnology product developers and
solutions providers, among them Affymetrix, Genemachines, AVI BioPharma, Inc.,
Silicon Genetics, Galapagos NV, Genomics Collaborative Inc. and Accelrys, Inc.
These relationships enable us to continuously update and enhance our technology
base at a minimal cost, and at the same time facilitate our research and
development efforts.

Academic and Government Collaborations

In order to enhance our research and technology access, we have established key
relationships with government agencies and major academic centers in the U.S.
and Europe. Our government collaborators include a number of U.S. Department of
Agriculture campuses, and we maintain over ten academic collaborations with
investigators at such institutions as Stanford University, Columbia University,
University of Cologne, The Rockefeller Institute and the University of North
Carolina. The purpose of these government and academic collaborations is to
continuously improve our core technology and to facilitate the establishment of
new discovery programs.

We will continue to establish strategic collaborations with government agencies
and academic centers. We will seek to retain significant rights to develop and
market products arising from our strategic alliances. In addition, we will
continue to invest our own funds in certain specific areas and product
opportunities with the aim of maintaining, enhancing and extending our core
technology, as well as increasing our opportunities to generate greater revenue
from such activities.

Acquisitions

We have also used acquisitions to strategically position and advance our
leadership as a genomics-based drug discovery company. In May 2001, we acquired
Artemis Pharmaceuticals GmbH, a privately held genetics and functional genomics
company, in a stock-for-stock transaction valued at approximately $24.2 million.
Located in Cologne and T bingen, Germany, Artemis is focused on the use of
vertebrate model genetic systems such as mice and zebrafish as tools for target
identification and validation. We co-founded Artemis in 1998 to expand our
access to vertebrate model system technologies. The two companies have worked
closely together since that time, and the acquisition creates a single,
worldwide drug discovery company with a broad array of biological systems and
other tools for rapid target identification and validation. This acquisition is
a continuation of our strategy to optimize all aspects of the drug discovery
process from target identification to clinical development.

Competition

We face intense competition in the different market segments we are pursuing.
There are many companies that have or are developing capabilities in the use of
model systems to identify new products. In addition, there are many companies
focused on the development of small molecule pharmaceuticals. Many genomics
companies are expanding their capabilities, using a variety of techniques, to
determine gene function and to develop products based on gene function. Our
potential competitors in the field are many in number and include major
pharmaceutical and agricultural companies, diagnostic companies, specialized
biotechnology companies, genomics companies and academic institutions and
universities.

Many of our potential competitors have significantly more financial, technical
and other resources than we do, which may allow them to have a competitive
advantage. We are aware that companies focused specifically on other model
systems such as mice and yeast have alternative methods for identifying product
targets. In addition, pharmaceutical, biotechnology and genomics companies and
academic institutions are conducting work in this field. In the future, we
expect the field to become more competitive with companies and academic
institutions seeking to develop competing technologies.

Any products that we may develop or discover through application of our
technologies will compete in highly competitive markets. Many of our potential
competitors in these markets have substantially greater financial, technical and
personnel resources than we do, and they may succeed in developing technologies
and products that may render our technologies and products and those of our
collaborators obsolete or noncompetitive. In addition, many of our competitors
have significantly greater experience than we do in their respective fields.

Research and Development Expenses

Research and development expenses consist primarily of salaries and other
personnel-related expenses, facilities costs, supplies, licenses and
depreciation of facilities and laboratory equipment. Research and development
expenses were $82.7 million for the year ended December 31, 2001, compared to
$51.7 million in 2000 and $21.7 million in 1999.

Proprietary Rights

We seek patent protection in the United States and international markets for the
plant and animal genes and gene functions, proteins, antibodies, biotherapeutics
and small molecule pharmaceutical and agricultural products that we discover, as
well as genetic and informatic methods and technology improvements for
discovering such genes, functions, proteins, antibodies, biotherapeutics and
small molecule pharmaceutical and agricultural products. Our intellectual
property strategy is designed to provide us with freedom to operate and
facilitate commercialization of our current and future products. Our patent
portfolio includes a total of 41 issued U.S. patents. Our p-element patent, U.S.
patent no. 4,670,388, exclusively licensed from Carnegie Institution of
Washington, has the earliest patent expiration date, which is June 2, 2004. We
are the assignee or exclusive licensee of three allowed and 169 pending U.S.
patent applications and corresponding international or foreign patent
applications related to our genetic and comparative genomic technologies, gene
and protein targets and specialized screens, and the application of these
technologies to diverse industries including agriculture, pharmaceuticals and
diagnostics. An additional 13 U.S. patent applications are pending as part of
the joint venture with Aventis CropScience. An additional 11 U.S. patent
applications are pending as part of the joint venture with Bayer.

We also rely in part on trade secret protection of our intellectual property. We
try to protect our trade secrets by entering into confidentiality agreements
with third parties, employees and consultants. Our employees and consultants
also sign agreements requiring that they assign to us their interests in patents
and other intellectual property arising from their work for us. All employees
sign an agreement not to engage in any conflicting employment or activity during
their employment with us and not to disclose or misuse our confidential
information. However, it is possible that these agreements may be breached or
invalidated, and if so, there may not be an adequate corrective remedy
available. Accordingly, we cannot ensure that employees, consultants or third
parties will not breach the confidentiality provisions in our contracts or
infringe or misappropriate our patents, trade secrets and other proprietary
rights, or that measures we are taking to protect our proprietary rights will be
adequate.

In the future, third parties may file claims asserting that our technologies or
products infringe on their intellectual property. We cannot predict whether
third parties will assert such claims against us or against the licensors of
technology licensed to us, or whether those claims will harm our business. If we
are forced to defend ourselves against such claims, whether they are with or
without merit and whether they are resolved in favor of, or against, our
licensors or us, we may face costly litigation and the diversion of management's
attention and resources. As a result of such disputes, we may have to develop
costly non-infringing technology or enter into licensing agreements. These
agreements, if necessary, may be unavailable on terms acceptable to us, or at
all, which could seriously harm our business or financial condition.

Employees

As of December 31, 2001, we had 571 full-time employees worldwide, 189 of whom
hold Ph.D. and/or M.D. degrees and 489 of whom were engaged in full-time
research and development activities. In 2001, we added several senior
executives to our management team. We plan to expand our preclinical and
clinical development programs, as well as our corporate development programs,
and hire additional staff as corporate collaborations are established and we
expand our internal development efforts to include clinical programs. Our
success will depend upon our ability to attract and retain employees. We face
competition in this regard from other companies in the biotechnology,
pharmaceutical and high technology industries as well as research and academic
institutions. None of our employees are represented by a labor union, and we
consider our employee relations to be good.

Risk Factors

EXELIXIS HAS A HISTORY OF NET LOSSES. WE EXPECT TO CONTINUE TO INCUR NET LOSSES,
AND WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY.

We have incurred net losses each year since our inception, including a net loss
of approximately $71.2 million for the year ended December 31, 2001. As of that
date, we had an accumulated deficit of approximately $201.2 million. We expect
these losses to continue and anticipate negative operating cash flow for the
foreseeable future. The size of these net losses will depend, in part, on the
rate of growth, if any, in our license and contract revenues and on the level of
our expenses. Our research and development expenditures and general and
administrative costs have exceeded our revenues to date, and we expect to spend
significant additional amounts to fund research and development in order to
enhance our core technologies and undertake product development. During 2001, we
acquired a compound in Phase II clinical development, and we are preparing not
only to manufacture this compound and prepare an Investigational New Drug
Application, or IND, for this compound, but also to file our first IND for a
proprietary compound in 2002. As a result, we expect that our operating
expenses will increase significantly in the near term, and consequently, we will
need to generate significant additional revenues to achieve profitability. Even
if we do increase our revenues and achieve profitability, we may not be able to
sustain or increase profitability.

WE WILL NEED ADDITIONAL CAPITAL THAT MAY NOT BE AVAILABLE TO US IN THE FUTURE.

Our future capital requirements will be substantial and will depend on many
factors, including:

- payments received under collaborative agreements;
- the progress and scope of our collaborative and independent research
and development projects;
- our need to expand our product development efforts as well as develop
manufacturing and marketing capabilities to commercialize products;
and
- the filing, prosecution and enforcement of patent claims.

We anticipate that our current cash and cash equivalents, short-term investments
and funding to be received from collaborators will enable us to maintain our
currently planned operations for at least the next two years. Changes to our
current operating plan may require us to consume available capital resources
significantly sooner than we expect. We may be unable to raise sufficient
additional capital when we need it, on favorable terms, or at all. If our
capital resources are insufficient to meet future capital requirements, we will
have to raise additional funds. The sale of equity or convertible debt
securities in the future may be dilutive to our stockholders, and debt financing
arrangements may require us to pledge certain assets and enter into covenants
that would restrict our ability to incur further indebtedness. If we are unable
to obtain adequate funds on reasonable terms, we may be required to curtail
operations significantly or to obtain funds by entering into financing, supply
or collaboration agreements on unattractive terms.

DIFFICULTIES WE MAY ENCOUNTER MANAGING OUR GROWTH MAY DIVERT RESOURCES AND LIMIT
OUR ABILITY TO SUCCESSFULLY EXPAND OUR OPERATIONS.

We have experienced a period of rapid and substantial growth that has placed,
and our anticipated growth in the future will continue to place, a strain on our
administrative and operational infrastructure. As our operations expand
domestically and internationally, we expect that we will need to manage multiple
locations and additional relationships with various collaborative partners,
suppliers and other third parties. Our ability to manage our operations and
growth effectively requires us to continue to improve our operational, financial
and management controls, reporting systems and procedures. We may not be able to
successfully implement improvements to our management information and control
systems in an efficient or timely manner and may discover deficiencies in
existing systems and controls. In addition, acquisitions involve the
integration of different financial and management reporting systems. We may not
be able to successfully integrate the administrative and operational
infrastructure without significant additional improvements and investments in
management systems and procedures

WE ARE DEPENDENT ON OUR COLLABORATIONS WITH MAJOR COMPANIES. IF WE ARE UNABLE TO
ACHIEVE MILESTONES, DEVELOP PRODUCTS OR RENEW OR ENTER INTO NEW COLLABORATIONS,
OUR REVENUES MAY DECREASE AND OUR ACTIVITIES MAY FAIL TO LEAD TO COMMERCIALIZED
PRODUCTS.

Substantially all of our revenues to date have been derived from collaborative
research and development agreements. Revenues from research and development
collaborations depend upon continuation of the collaborations, the achievement
of milestones and royalties derived from future products developed from our
research. If we are unable to successfully achieve milestones or our
collaborators fail to develop successful products, we will not earn the revenues
contemplated under such collaborative agreements. In addition, some of our
collaborations are exclusive and preclude us from entering into additional
collaborative arrangements with other parties in the area or field of
exclusivity.

We currently have collaborative research agreements with Bayer, Bristol-Myers
Squibb (two agreements), Protein Design Labs, Dow AgroSciences and Aventis. Our
current collaborative agreement with Bayer is scheduled to expire in 2008, after
which it will automatically be extended for one-year terms unless terminated by
either party upon 12-month written notice. Our agreement permits Bayer to
terminate our collaborative activities prior to 2008 upon the occurrence of
specified conditions, such as the failure to agree on key strategic issues after
a period of years or the acquisition of Exelixis by certain specified third
parties. Our agreement with Bayer is subject to termination at an earlier date
if two or more of our Chief Executive Officer, Chief Scientific Officer,
Agricultural Biotechnology Program Leader and Chief Informatics Officer cease to
have a relationship with us within six months of each other. Our mechanism of
action collaborative agreement with Bristol-Myers Squibb expires in September
2002. Our cancer collaborative agreement with Bristol-Myers Squibb expires in
July 2004. Our collaborative agreement with Dow AgroSciences is scheduled to
expire in July 2003, after which Dow AgroSciences has the option to renew on an
annual basis. Our collaborative research arrangement with Aventis is scheduled
to expire in June 2004. The Aventis arrangement is conducted through a limited
liability company, Agrinomics, which is owned equally by Aventis and Exelixis.
Aventis may surrender its interest in Agrinomics and terminate the related
research collaboration prior to the scheduled expiration upon the payment of the
subsequent year's funding commitment. Bayer has an agreement to acquire
Aventis, and we have not been advised of the status of the existing Agrinomics
following completion of the acquisition.

If these existing agreements are not renewed or if we are unable to enter into
new collaborative agreements on commercially acceptable terms, our revenues and
product development efforts may be adversely affected. For example, our
agreement with Pharmacia terminated by mutual agreement in February 2002,
eliminating the opportunity for us to earn approximately $9.0 million in
research revenue in each of the next two years. Although we expect to enter
into other collaborations that may offset this loss of revenue, we may not be
able to enter into a new collaborative agreement on similar or superior
financial terms than those under the Pharmacia arrangement.

CONFLICTS WITH OUR COLLABORATORS COULD JEOPARDIZE THE OUTCOME OF OUR
COLLABORATIVE AGREEMENTS AND OUR ABILITY TO COMMERCIALIZE PRODUCTS.

We are conducting proprietary research programs in specific disease and
agricultural product areas that are not covered by our collaborative agreements.
Our pursuit of opportunities in agricultural and pharmaceutical markets could,
however, result in conflicts with our collaborators in the event that any of our
collaborators take the position that our internal activities overlap with those
areas that are exclusive to our collaborative agreements, and we should be
precluded from such internal activities. Moreover, disagreements with our
collaborators could develop over rights to our intellectual property. In
addition, our collaborative agreements may have provisions that give rise to
disputes regarding the rights and obligations of the parties. Any conflict with
our collaborators could lead to the termination of our collaborative agreements,
delay collaborative activities, reduce our ability to renew agreements or obtain
future collaboration agreements or result in litigation or arbitration and would
negatively impact our relationship with existing collaborators.

We have limited or no control over the resources that our collaborators may
choose to devote to our joint efforts. Our collaborators may breach or terminate
their agreements with us or fail to perform their obligations thereunder.
Further, our collaborators may elect not to develop products arising out of our
collaborative arrangements or may fail to devote sufficient resources to the
development, manufacture, market or sale of such products. Certain of our
collaborators could also become our competitors in the future. If our
collaborators develop competing products, preclude us from entering into
collaborations with their competitors, fail to obtain necessary regulatory
approvals, terminate their agreements with us prematurely or fail to devote
sufficient resources to the development and commercialization of our products,
our product development efforts could be delayed and may fail to lead to
commercialized products.

WE ARE DEPLOYING UNPROVEN TECHNOLOGIES, AND WE MAY NOT BE ABLE TO DEVELOP
COMMERCIALLY SUCCESSFUL PRODUCTS.

Our research and operations thus far have allowed us to identify a number of
product targets for use by our collaborators as well as targets and small
molecule compounds for our own internal development programs. We are not
certain, however, of the commercial value of any of our current or future
targets and molecules, and we may not be successful in expanding the scope of
our research into new fields of pharmaceutical or agricultural research.
Significant research and development, financial resources and personnel will be
required to capitalize on our technology, develop commercially viable products
and obtain regulatory approval for such products.

WE HAVE NO EXPERIENCE IN DEVELOPING, MANUFACTURING AND MARKETING PRODUCTS AND
MAY BE UNABLE TO COMMERCIALIZE PROPRIETARY PRODUCTS.

Initially, we relied on our collaborators to develop and commercialize products
based on our research and development efforts. We have limited or no experience
in using the targets that we identify to develop our own proprietary products,
or developing small molecule compounds against those targets. Our recent
efforts in applying our drug development capabilities to our proprietary targets
in cancer are subject to significant risk and uncertainty, particularly with
respect to our ability to meet currently estimated timelines and goals for
completing preclinical development efforts and filing an Investigational New
Drug Application for compounds developed. In order for us to commercialize
products, we would need to significantly enhance our capabilities with respect
to product development, and establish manufacturing and marketing capabilities,
either directly or through outsourcing or licensing arrangements. We may not be
able to enter into such outsourcing or licensing agreements on commercially
reasonable terms, or at all.

SINCE OUR TECHNOLOGIES HAVE MANY POTENTIAL APPLICATIONS AND WE HAVE LIMITED
RESOURCES, OUR FOCUS ON A PARTICULAR AREA MAY RESULT IN OUR FAILURE TO
CAPITALIZE ON MORE PROFITABLE AREAS.

We have limited financial and managerial resources. This requires us to focus on
product candidates in specific industries and forego opportunities with regard
to other products and industries. For example, depending on our ability to
allocate resources, a decision to concentrate on a particular agricultural
program may mean that we will not have resources available to apply the same
technology to a pharmaceutical project. While our technologies may permit us to
work in both areas, resource commitments may require trade-offs resulting in
delays in the development of certain programs or research areas, which may place
us at a competitive disadvantage. Our decisions impacting resource allocation
may not lead to the development of viable commercial products and may divert
resources from more profitable market opportunities.

OUR COMPETITORS MAY DEVELOP PRODUCTS AND TECHNOLOGIES THAT MAKE OUR PRODUCTS AND
TECHNOLOGIES OBSOLETE.

The biotechnology industry is highly fragmented and is characterized by rapid
technological change. In particular, the area of gene research is a rapidly
evolving field. We face, and will continue to face, intense competition from
large biotechnology and pharmaceutical companies, as well as academic research
institutions, clinical reference laboratories and government agencies that are
pursuing research activities similar to ours. Some of our competitors have
entered into collaborations with leading companies within our target markets,
including some of our existing collaborators. Our future success will depend on
our ability to maintain a competitive position with respect to technological
advances.

Any products that are developed through our technologies will compete in highly
competitive markets. Further, our competitors may be more effective at using
their technologies to develop commercial products. Many of the organizations
competing with us have greater capital resources, larger research and
development staffs and facilities, more experience in obtaining regulatory
approvals and more extensive product manufacturing and marketing capabilities.
As a result, our competitors may be able to more easily develop technologies and
products that would render our technologies and products, and those of our
collaborators, obsolete and noncompetitive.

IF WE ARE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY, THIRD PARTIES
MAY BE ABLE TO USE OUR TECHNOLOGY, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO
COMPETE IN THE MARKET.

Our success will depend in part on our ability to obtain patents and maintain
adequate protection of the intellectual property related to our technologies and
products. The patent positions of biotechnology companies, including our patent
position, are generally uncertain and involve complex legal and factual
questions. We will be able to protect our intellectual property rights from
unauthorized use by third parties only to the extent that our technologies are
covered by valid and enforceable patents or are effectively maintained as trade
secrets. The laws of some foreign countries do not protect intellectual property
rights to the same extent as the laws of the U.S., and many companies have
encountered significant problems in protecting and defending such rights in
foreign jurisdictions. We will continue to apply for patents covering our
technologies and products as and when we deem appropriate. However, these
applications may be challenged or may fail to result in issued patents. Our
existing patents and any future patents we obtain may not be sufficiently broad
to prevent others from practicing our technologies or from developing competing
products. Furthermore, others may independently develop similar or alternative
technologies or design around our patents. In addition, our patents may be
challenged, invalidated or fail to provide us with any competitive advantages.

We rely on trade secret protection for our confidential and proprietary
information. We have taken security measures to protect our proprietary
information and trade secrets, but these measures may not provide adequate
protection. While we seek to protect our proprietary information by entering
into confidentiality agreements with employees, collaborators and consultants,
we cannot assure you that our proprietary information will not be disclosed, or
that we can meaningfully protect our trade secrets. In addition, our competitors
may independently develop substantially equivalent proprietary information or
may otherwise gain access to our trade secrets.

LITIGATION OR THIRD-PARTY CLAIMS OF INTELLECTUAL PROPERTY INFRINGEMENT COULD
REQUIRE US TO SPEND SUBSTANTIAL TIME AND MONEY AND ADVERSELY AFFECT OUR ABILITY
TO DEVELOP AND COMMERCIALIZE PRODUCTS.

Our commercial success depends in part on our ability to avoid infringing
patents and proprietary rights of third parties and not breaching any licenses
that we have entered into with regard to our technologies. Other parties have
filed, and in the future are likely to file, patent applications covering genes
and gene fragments, techniques and methodologies relating to model systems and
products and technologies that we have developed or intend to develop. If
patents covering technologies required by our operations are issued to others,
we may have to rely on licenses from third parties, which may not be available
on commercially reasonable terms, or at all.

Third parties may accuse us of employing their proprietary technology without
authorization. In addition, third parties may obtain patents that relate to our
technologies and claim that use of such technologies infringes these patents.
Regardless of their merit, such claims could require us to incur substantial
costs, including the diversion of management and technical personnel, in
defending ourselves against any such claims or enforcing our patents. In the
event that a successful claim of infringement is brought against us, we may be
required to pay damages and obtain one or more licenses from third parties. We
may not be able to obtain these licenses at a reasonable cost, or at all.
Defense of any lawsuit or failure to obtain any of these licenses could
adversely affect our ability to develop and commercialize products.

THE LOSS OF KEY PERSONNEL OR THE INABILITY TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL COULD IMPAIR OUR ABILITY TO EXPAND OUR OPERATIONS.

We are highly dependent on the principal members of our management and
scientific staff, the loss of whose services might adversely impact the
achievement of our objectives and the continuation of existing collaborations.
In addition, recruiting and retaining qualified scientific and clinical
personnel to perform future research and development work will be critical to
our success. We do not currently have sufficient executive management and
technical personnel to fully execute our business plan. There is currently a
shortage of skilled executives and employees with technical expertise, and this
shortage is likely to continue. As a result, competition for skilled personnel
is intense, and turnover rates are high. Although we believe we will be
successful in attracting and retaining qualified personnel, competition for
experienced scientists from numerous companies and academic and other research
institutions may limit our ability to do so.

Our business operations will require additional expertise in specific industries
and areas applicable to products identified and developed through our
technologies. These activities will require the addition of new personnel,
including management and technical personnel and the development of additional
expertise by existing employees. The inability to attract such personnel or to
develop this expertise could prevent us from expanding our operations in a
timely manner, or at all.

OUR COLLABORATIONS WITH OUTSIDE SCIENTISTS MAY BE SUBJECT TO RESTRICTION AND
CHANGE.

We work with scientific advisors and collaborators at academic and other
institutions that assist us in our research and development efforts. These
scientists are not our employees and may have other commitments that would limit
their availability to us. Although our scientific advisors and collaborators
generally agree not to do competing work, if a conflict of interest between
their work for us and their work for another entity arises, we may lose their
services. In addition, although our scientific advisors and collaborators sign
agreements not to disclose our confidential information, it is possible that
valuable proprietary knowledge may become publicly known through them.

OUR POTENTIAL THERAPEUTIC PRODUCTS ARE SUBJECT TO A LENGTHY AND UNCERTAIN
REGULATORY PROCESS THAT MAY NOT RESULT IN THE NECESSARY REGULATORY APPROVALS,
WHICH COULD ADVERSELY AFFECT OUR ABILITY TO COMMERCIALIZE PRODUCTS.

The Food and Drug Administration, or FDA, must approve any drug or biologic
product before it can be marketed in the U.S. Any products resulting from our
research and development efforts must also be approved by the regulatory
agencies of foreign governments before the product can be sold outside the U.S.
Before a new drug application or biologics license application can be filed with
the FDA, the product candidate must undergo extensive clinical trials, which can
take many years and may require substantial expenditures. The regulatory process
also requires preclinical testing. Data obtained from preclinical and clinical
activities are susceptible to varying interpretations, which could delay, limit
or prevent regulatory approval. In addition, delays or rejections may be
encountered based upon changes in regulatory policy for product approval during
the period of product development and regulatory agency review. The clinical
development and regulatory approval process is expensive and time consuming. Any
failure to obtain regulatory approval could delay or prevent us from
commercializing products.

Our efforts to date have been primarily limited to identifying targets and
developing small molecule compounds against those targets. Significant research
and development efforts will be necessary before any of our products directed
such targets can be commercialized. If regulatory approval is granted to any of
our products, this approval may impose limitations on the uses for which a
product may be marketed. Further, once regulatory approval is obtained, a
marketed product and its manufacturer are subject to continual review, and
discovery of previously unknown problems with a product or manufacturer may
result in restrictions and sanctions with respect to the product, manufacturer
and relevant manufacturing facility, including withdrawal of the product from
the market.

CLINICAL TRIALS ON OUR POTENTIAL PRODUCTS MAY FAIL TO DEMONSTRATE SAFETY AND
EFFICACY, WHICH COULD PREVENT OR SIGNIFICANTLY DELAY REGULATORY APPROVAL.

Clinical trials are inherently risky and may reveal that our potential products
are ineffective or have unacceptable toxicity or other side effects that may
significantly limit the possibility of regulatory approval of the potential
product. The regulatory review and approval process is extensive and uncertain
and typically takes many years to complete. The FDA requires submission of
extensive prelinical, clinical and manufacturing data for each indication for
which approval is sought in order to assess the safety and efficacy of the
potential product. In addition, the results of preliminary studies do not
necessarily predict clinical or commercial success, and larger later-stage
clinical trials may fail to confirm the results observed in the preliminary
studies.

In July 2001, we acquired a cancer compound, DEAE Rebeccamycin, currently in
Phase II clinical studies. This compound was manufactured by Bristol-Myers
Squibb, and clinical studies to date have been conducted by the National Cancer
Institute, or NCI. We will have to conduct additional studies in order to meet
FDA requirements for regulatory approval. We have no prior experience in
conducting clinical studies, and, in conjunction with the NCI, we expect to
undertake further clinical development of this compound under our own IND in
order to obtain regulatory approval. We may not be able to rapidly or
effectively assume responsibility for further development of this compound or
assure that any specified timelines with respect to the initiation or completion
of clinical studies may be achieved.

WE LACK THE CAPABILITY TO MANUFACTURE COMPOUNDS FOR CLINICAL TRIALS AND WILL
RELY ON THIRD PARTIES TO MANUFACTURE OUR POTENTIAL PRODUCTS, AND WE MAY BE
UNABLE TO OBTAIN REQUIRED MATERIAL IN A TIMELY MANNER OR AT A QUALITY LEVEL
REQUIRED TO RECEIVE REGULATORY APPROVAL.

We currently do not have manufacturing capabilities or experience necessary to
produce materials for clinical trials, including our Phase II clinical compound,
DEAE Rebeccamycin. We intend to rely on collaborators and third-party
contractors to produce materials necessary for preclinical and clinical studies.
We will rely on selected manufacturers to deliver materials on a timely basis
and to comply with applicable regulatory requirements, including the FDA's
current Good Manufacturing Practices, or GMP. These manufacturers may not be
able to produce material on a timely basis or manufacture material at the
quality level or in the quantity required to meet our development timelines and
applicable regulatory requirements. If we are unable to contract for production
of sufficient quantity and quality of materials on acceptable terms, our planned
clinical trials may be delayed. Delays in preclinical or clinical studies could
delay the filing of our INDs and the initiation of clinical trials that we have
currently planned.

SOCIAL ISSUES MAY LIMIT THE PUBLIC ACCEPTANCE OF GENETICALLY ENGINEERED
PRODUCTS, WHICH COULD REDUCE DEMAND FOR OUR PRODUCTS.

Although our technology is not dependent on genetic engineering, genetic
engineering plays a prominent role in our approach to product development. For
example, research efforts focusing on plant traits may involve either selective
breeding or modification of existing genes in the plant under study. Public
attitudes may be influenced by claims that genetically engineered products are
unsafe for consumption or pose a danger to the environment. Such claims may
prevent our genetically engineered products from gaining public acceptance. The
commercial success of our future products will depend, in part, on public
acceptance of the use of genetically engineered products, including drugs and
plant and animal products.

The subject of genetically modified organisms has received negative publicity,
which has aroused public debate. For example, certain countries in Europe are
considering regulations that may ban products or require express labeling of
products that contain genetic modifications or are "genetically modified."
Adverse publicity has resulted in greater regulation internationally and trade
restrictions on imports of genetically altered products. If similar action is
taken in the U.S., genetic research and genetically engineered products could be
subject to greater domestic regulation, including stricter labeling
requirements. To date, our business has not been hampered by these activities.
However, such publicity in the future may prevent any products resulting from
our research from gaining market acceptance and reduce demand for our products.

LAWS AND REGULATIONS MAY REDUCE OUR ABILITY TO SELL GENETICALLY ENGINEERED
PRODUCTS THAT WE OR OUR COLLABORATORS DEVELOP IN THE FUTURE.

We or our collaborators may develop genetically engineered agricultural and
animal products. The field-testing, production and marketing of genetically
engineered products are subject to regulation by federal, state, local and
foreign governments. Regulatory agencies administering existing or future
regulations or legislation may prevent us from producing and marketing
genetically engineered products in a timely manner or under technically or
commercially feasible conditions. In addition, regulatory action or private
litigation could result in expenses, delays or other impediments to our product
development programs and the commercialization of products. The FDA has released
a policy statement stating that it will apply the same regulatory standards to
foods developed through genetic engineering as it applies to foods developed
through traditional plant breeding. Genetically engineered food products will be
subject to premarket review, however, if these products raise safety questions
or are deemed to be food additives. Our products may be subject to lengthy FDA
reviews and unfavorable FDA determinations if they raise questions regarding
safety or our products are deemed to be food additives.

The FDA has also announced that it will not require genetically engineered
agricultural products to be labeled as such, provided that these products are as
safe and have the same nutritional characteristics as conventionally developed
products. The FDA may reconsider or change its policies, and local or state
authorities may enact labeling requirements, either of which could have a
material adverse effect on our ability or the ability of our collaborators to
develop and market products resulting from our efforts.

WE USE HAZARDOUS CHEMICALS AND RADIOACTIVE AND BIOLOGICAL MATERIALS IN OUR
BUSINESS. ANY CLAIMS RELATING TO IMPROPER HANDLING, STORAGE OR DISPOSAL OF THESE
MATERIALS COULD BE TIME CONSUMING AND COSTLY.

Our research and development processes involve the controlled use of hazardous
materials, including chemicals and radioactive and biological materials. Our
operations produce hazardous waste products. We cannot eliminate the risk of
accidental contamination or discharge and any resultant injury from these
materials. Federal, state and local laws and regulations govern the use,
manufacture, storage, handling and disposal of hazardous materials. We may be
sued for any injury or contamination that results from our use or the use by
third parties of these materials, and our liability may exceed our insurance
coverage and our total assets. Compliance with environmental laws and
regulations may be expensive, and current or future environmental regulations
may impair our research, development and production efforts.

In addition, our collaborators may use hazardous materials in connection with
our collaborative efforts. To our knowledge, their work is performed in
accordance with applicable biosafety regulations. In the event of a lawsuit or
investigation, however, we could be held responsible for any injury caused to
persons or property by exposure to, or release of, these hazardous materials
used by these parties. Further, we may be required to indemnify our
collaborators against all damages and other liabilities arising out of our
development activities or products produced in connection with these
collaborations.

WE EXPECT THAT OUR QUARTERLY RESULTS OF OPERATIONS WILL FLUCTUATE, AND THIS
FLUCTUATION COULD CAUSE OUR STOCK PRICE TO DECLINE, CAUSING INVESTOR LOSSES.

Our quarterly operating results have fluctuated in the past and are likely to
fluctuate in the future. A number of factors, many of which we cannot control,
could subject our operating results and stock price to volatility, including:

- recognition of upfront licensing or other fees;
- payments of non-refundable upfront or licensing fees to third parties;
- acceptance of our technologies and platforms;
- the success rate of our discovery efforts leading to milestones and
royalties;
- the introduction of new technologies or products by our competitors;
- the timing and willingness of collaborators to commercialize our
products;
- our ability to enter into new collaborative relationships;
- the termination or non-renewal of existing collaborations;
- the timing and amount of expenses incurred for clinical development
and manufacturing of our products; and
- general and industry-specific economic conditions that may affect our
collaborators' research and development expenditures.

A large portion of our expenses, including expenses for facilities, equipment
and personnel, are relatively fixed in the short term. In addition, we expect
operating expenses to increase significantly during the next year. Accordingly,
if our revenues decline or do not grow as anticipated due to the expiration of
existing contracts or our failure to obtain new contracts, our inability to meet
milestones or other factors, we may not be able to correspondingly reduce our
operating expenses. Failure to achieve anticipated levels of revenues could
therefore significantly harm our operating results for a particular fiscal
period.

Due to the possibility of fluctuations in our revenues and expenses, we believe
that quarter-to-quarter comparisons of our operating results are not a good
indication of our future performance. As a result, in some future quarters, our
operating results may not meet the expectations of stock market analysts and
investors, which could result in a decline in the price of our stock.

OUR STOCK PRICE MAY BE EXTREMELY VOLATILE.

We believe the trading price of our common stock will remain highly volatile and
may fluctuate substantially due to factors such as the following:

- the announcement of new products or services by us or our competitors;
- the failure of new products in clinical trials by us or our
competitors;
- quarterly variations in our or our competitors' results of operations;
- failure to achieve operating results projected by securities analysts;
- changes in earnings estimates or recommendations by securities
analysts;
- developments in the biotechnology industry;
- acquisitions of other companies or technologies; and
- general market conditions and other factors, including factors
unrelated to our operating performance or the operating performance of
our competitors.

These factors and fluctuations, as well as general economic, political and
market conditions, may materially adversely affect the market price of our
common stock.

In the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted. A
securities class action suit against us could result in substantial costs and
divert management's attention and resources, which could have a material and
adverse effect on our business.

WE ARE EXPOSED TO RISKS ASSOCIATED WITH ACQUISITIONS.

We have made, and may in the future make, acquisitions of, or significant
investments in, businesses with complementary products, services and/or
technologies. Acquisitions involve numerous risks, including, but not limited
to:

- difficulties and increased costs in connection with integration of the
personnel, operations, technologies and products of acquired
companies;
- diversion of management's attention from other operational matters;
- the potential loss of key employees of acquired companies;
- the potential loss of key collaborators of the acquired companies;
- lack of synergy, or the inability to realize expected synergies,
resulting from the acquisition;
- the existence or development of litigation against the company
acquired; and
- acquired intangible assets becoming impaired as a result of
technological advancements or worse-than-expected performance of the
acquired company's assets.

Mergers and acquisitions are inherently risky, and the inability to effectively
manage these risks could materially and adversely affect our business, financial
condition and results of operations.

IF PRODUCT LIABILITY LAWSUITS ARE SUCCESSFULLY BROUGHT AGAINST US, WE COULD FACE
SUBSTANTIAL LIABILITIES THAT EXCEED OUR RESOURCES.

We may be held liable if any product our collaborators or we develop causes
injury or is found otherwise unsuitable during product testing, manufacturing,
marketing or sale. Although we intend to obtain general liability and product
liability insurance, this insurance may be prohibitively expensive, or may not
fully cover our potential liabilities. Inability to obtain sufficient insurance
coverage at an acceptable cost or to otherwise protect ourselves against
potential product liability claims could prevent or inhibit the
commercialization of products developed by our collaborators or us.

OUR HEADQUARTERS FACILITIES ARE LOCATED NEAR KNOWN EARTHQUAKE FAULT ZONES, AND
THE OCCURRENCE OF AN EARTHQUAKE OR OTHER CATASTROPHIC DISASTER COULD CAUSE
DAMAGE TO OUR FACILITIES AND EQUIPMENT, WHICH COULD REQUIRE US TO CEASE OR
CURTAIL OPERATIONS.

Given our headquarters location in South San Francisco, our facilities are
vulnerable to damage from earthquakes. We are also vulnerable worldwide to
damage from other types of disasters, including fire, floods, power loss,
communications failures and similar events. If any disaster were to occur, our
ability to operate our business at our facilities would be seriously, or
potentially completely, impaired. In addition, the unique nature of our research
activities could cause significant delays in our programs and make it difficult
for us to recover from a disaster. The insurance we maintain may not be adequate
to cover our losses resulting from disasters or other business interruptions.
Accordingly, an earthquake or other disaster could materially and adversely harm
our ability to conduct business.

FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.

If our stockholders sell substantial amounts of our common stock (including
shares issued upon the exercise of outstanding options and warrants) in the
public market, the market price of our common stock could fall. These sales
also might make it more difficult for us to sell equity or equity-related
securities in the future at a time and price that we deemed appropriate. For
example, following an acquisition, a significant number of shares of our common
stock held by new stockholders became freely tradable following the acquisition.
Similarly, shares of common stock held by existing stockholders prior to the
public offering became freely tradable in 2000, subject in some instances to the
volume and other limitations of Rule 144. Sales of these shares and other
shares of common stock held by existing stockholders could cause the market
price of our common stock to decline.

SOME OF OUR EXISTING STOCKHOLDERS CAN EXERT CONTROL OVER US, AND THEIR INTERESTS
COULD CONFLICT WITH THE BEST INTERESTS OF OUR OTHER STOCKHOLDERS.

Due to their combined stock holdings, our officers, directors and principal
stockholders (stockholders holding more than 5% of our common stock) acting
together, may be able to exert significant influence over all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. In addition, this concentration of ownership
may delay or prevent a change in control of our company, even when a change may
be in the best interests of our stockholders. In addition, the interests of
these stockholders may not always coincide with our interests as a company or
the interests of other stockholders. Accordingly, these stockholders could cause
us to enter into transactions or agreements that you would not approve.

ITEM 2. PROPERTIES

We currently have commitments to lease an aggregate of 226,000 square feet of
office and laboratory facilities in South San Francisco, California in three
buildings. The first building lease, for 33,000 square feet, expires on July 31,
2005. The second building lease is for two buildings, one for 70,000 square feet
and the other for 50,000 square feet, and the lease expires in 2017. Under this
second building lease, we have two five-year options to extend the term prior to
expiration. During the first quarter of 2002, we subleased two additional
facilities in South San Francisco for continued expansion. Both leases start in
March of 2002. The first facility is 8,000 square feet and is a two-year lease
with a renewable option. The other facility is 4,000 square feet and is a
one-year lease.

We lease approximately 17,000 square feet of office and laboratory space in
Portland, Oregon and own a 15-acre farm in Woodburn, Oregon. Greenhouse capacity
at the farm currently totals 50,000 square feet. The lease in Portland expires
on February 28, 2003, and there is an option to renew for an additional five
years.

We lease approximately 2,200 square feet of office and laboratory space in
Cologne, Germany and an additional 1,300 square feet of laboratory space in T
bingen, Germany. These leases expire at dates ranging between April 30, 2003 to
October 31, 2004. There is an option to renew all leases for a period ranging
from three to five years.

We lease approximately 41,700 square feet of office and research and development
space in Boulder, Colorado, of which 24,000 is sublet for the remaining term of
the lease. This lease expires in July 2005, and there are two options to renew
for additional five year terms. We are currently attempting to sublease these
facilities.

We sublease approximately 2,200 square feet of office space in Sacramento,
California. The lease is scheduled to expire in March 2004. We currently
expect to sublease these facilities.

ITEM 3. LEGAL PROCEEDINGS

Through our acquisition of Genomica, we are a party to a claim brought on
December 5, 2001 by Rudoph Liedtke, on behalf of himself and all others
similarly situated, against Genomica and eight of its now-former directors in
Colorado state court. In the action captioned Liedtke v. Genomica Corporation,
et al., 01-CV-1822 (District Court, Division 3, Boulder County, Colorado), Mr.
Liedtke alleges that the individual defendants breached their fiduciary duties
to Genomica stockholders by voting in favor of the Agreement and Plan of Merger
and Reorganization with our wholly-owned subsidiary. Mr. Liedtke's complaint
sets forth a single cause of action for breach of fiduciary duty and purports to
seek an injunction prohibiting the consummation of the merger with Exelixis
completed on January 8, 2002. We filed a motion to dismiss the complaint. The
current calendar set by the court anticipates a ruling in the spring of 2002.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock has traded on the Nasdaq National Market under the symbol
"EXEL" since April 11, 2000. The following table sets forth, for the periods
indicated, the high and low bid quotations for our common stock as reported by
the Nasdaq National Market:

Common Stock Price
---------------------
High Low
------- --------

Quarter ended December 31, 2001 . . . . . . . . . . $17.47 $10.60
Quarter ended September 30, 2001. . . . . . . . . . $19.28 $ 9.61
Quarter ended June 30, 2001 . . . . . . . . . . . . $19.00 $ 7.25
Quarter ended March 31, 2001. . . . . . . . . . . . $16.25 $ 6.00
Quarter ended December 31, 2000 . . . . . . . . . . $32.94 $11.56
Quarter ended September 30, 2000. . . . . . . . . . $49.25 $31.38
Quarter ended June 30, 2000 (from April 11, 2000) . $33.94 $14.00

On March 18, 2002, the last reported sale price on the Nasdaq National Market
for our common stock was $12.90 per share.

Holders

As of March 18, 2002, there were approximately 1,012 stockholders of record of
Exelixis common stock.

Dividends

Since inception, we have not paid dividends on our common stock. We currently
intend to retain all future earnings, if any, for use in our business and
currently do not plan to pay any cash dividends in the foreseeable future. Any
future determination to pay dividends will be at the discretion of our board of
directors.

Use of Proceeds from the Sale of Registered Securities

In May 2000, we completed our initial public offering for aggregate proceeds of
approximately $136.0 million. In connection with the offering, we paid a total
of approximately $9.5 million in underwriting discounts and commissions and $2.0
million in other offering costs and expenses. After deducting the underwriting
discounts and commissions and the offering costs and expenses, our net proceeds
from the offering were approximately $124.5 million.

From the time of receipt through December 31, 2001, the proceeds from the
offering were used for research and development activities, capital
expenditures, working capital, merger and acquisition expenses and other general
corporate purposes. In the future, we intend to use the remaining net proceeds
in a similar manner. As of December 31, 2001, $74.3 million of the proceeds
remained available and were primarily invested in short-term marketable
securities.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated historical information has been derived from
the audited consolidated financial statements of Exelixis. The financial
information as of December 31, 2001 and 2000 and for each of the three years in
the period ended December 31, 2001 are derived from audited consolidated
financial statements and are included elsewhere in this Annual Report on Form
10-K. The following Selected Consolidated Financial Data should be read in
conjunction with "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Item 8. Consolidated Financial
Statements and Supplementary Data" included elsewhere in this Annual Report on
Form 10-K. The historical results are not necessarily indicative of the results
of operations to be expected in the future.

Year Ended December 31,
-------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- --------- --------- ---------
(In thousands, except per share data)

Statement of Operations Data:
Contract and government grants . . . . . . . . . $ 33,518 $ 20,983 $ 9,464 $ 2,133 $ -
License. . . . . . . . . . . . . . . . . . . . . 7,488 3,776 1,046 139 -
---------- ---------- --------- --------- ---------
Total revenues. . . . . . . . . . . . . . . 41,006 24,759 10,510 2,272 -
---------- ---------- --------- --------- ---------

Operating expenses:
Research and development.. . . . . . . . . . . 82,700 51,685 21,653 12,096 8,223
Selling, general and administrative. . . . . . 19,166 15,678 7,624 5,472 3,743
Acquired in-process research and development.. 6,673 38,117 - - -
Impairment of goodwill.. . . . . . . . . . . . 2,689 - - - -
Amortization of intangibles. . . . . . . . . . 5,092 260 - - -
---------- ---------- --------- --------- ---------
Total operating expenses. . . . . . . . . . 116,320 105,740 29,277 17,568 11,966
---------- ---------- --------- --------- ---------

Loss from operations.. . . . . . . . . . . . . . (75,314) (80,981) (18,767) (15,296) (11,966)

Interest and other income (expense), net . . . . 4,128 5,569 46 (50) 470

Equity in net loss of affliated company. . . . . - - - (320) -
Minority interest in subsidiary net loss . . . . - 101 - - -
---------- ---------- --------- --------- ---------

Net loss.. . . . . . . . . . . . . . . . . . . . $ (71,186) $ (75,311) $(18,721) $(15,666) $(11,496)
========== ========== ========= ========= =========

Basic and diluted net loss per share . . . . . . $ (1.53) $ (2.43) $ (4.60) $ (7.88) $ (9.97)
========== ========== ========= ========= =========
Shares used in computing basic and
diluted net loss per share . . . . . . . . . . 46,485 31,031 4,068 1,988 1,154
========== ========== ========= ========= =========

December 31,
-------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- --------- --------- ---------
(In thousands)
Balance Sheet Data:
Cash, cash equivalents and short-term
investments. . . . . . . . . . . . . . . . . . $ 227,700 $ 112,552 $ 6,904 $ 2,058 $ 9,715
Working capital (deficit). . . . . . . . . . . . 194,242 96,019 (672) 182 7,619
Total assets . . . . . . . . . . . . . . . . . . 346,614 204,914 18,901 8,981 15,349
Long-term obligations, less
current portion. . . . . . . . . . . . . . . . 48,667 7,976 11,132 2,566 1,759
Deferred stock compensation, net.. . . . . . . . (4,137) (10,174) (14,167) (1,803) (102)
Accumulated deficit. . . . . . . . . . . . . . . (201,224) (130,038) (54,727) (36,006) (20,340)
Total stockholders' equity (deficit).. . . . . . 237,220 162,734 (49,605) (35,065) (20,364)

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS

The following discussion and analysis contains forward-looking statements that
are based upon current expectations. These statements are based on our current
expectations, assumptions, estimates and projections about our business and our
industry, and involve known and unknown risks, uncertainties and other factors
that may cause our or our industry's results, levels of activity, performance or
achievement to be materially different from any future results, levels of
activity, performance or achievements expressed or implied in or contemplated by
the forward-looking statements. Words such as "believe," "anticipate," "expect,"
"intend," "plan," "will," "may," "should," "estimate," "predict," "potential,"
"continue" or the negative of such terms or other similar expressions, identify
forward-looking statements. Our actual results and the timing of events may
differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in "Risk Factors" as well as those discussed
elsewhere in this Annual Report on Form 10-K . You should read the following
discussion and analysis in conjunction with the "Selected Consolidated Financial
Data" and the financial statements and notes thereto included in this Annual
Report on Form 10-K. Historical operating results are not necessarily
indicative of results that may occur in future periods.

Overview

Our most advanced proprietary pharmaceutical program focuses on drug discovery
and development of small molecules in cancer. Specifically, the remarkable
evolutionary conservation of the biochemical pathways strongly supports the use
of simple model systems, such as fruit flies, nematode worms, zebrafish and
mice, to identify key components of critical cancer pathways that can then be
targeted for drug discovery. We expect to develop new cancer drugs by
exploiting the underlying "genetic liabilities" of tumor cells to provide
specificity in targeting these cells for destruction, while leaving normal cells
unharmed. We have discovered and are further developing a number of small
molecule drug targets in addition to monoclonal antibody drug targets.
Molecules directed against these targets may selectively kill cancer cells while
leaving normal cells unharmed, and may provide alternatives to current cancer
therapies.

We believe that our proprietary technologies are also valuable to other
industries whose products can be enhanced by an understanding of DNA or
proteins, including the agrochemical, agricultural and diagnostic industries.
Many of these industries have shorter product development cycles and lower risk
than the pharmaceutical industry, while at the same time generating significant
sales with attractive profit margins. By partnering with companies in multiple
industries, we believe that we are able to diversify our business risk, while at
the same time maximizing our future revenue stream opportunities.

In addition to our commercial collaborations, we have relationships with other
biotechnology companies, academic institutions and universities that provide us
access to specific technology or intellectual property for the enhancement of
our business. These include collaborations with leading biotechnology product
developers and solutions providers, among them Affymetrix Inc., Genemachines,
AVI BioPharma, Inc, Silicon Genetics, Galapagos NV, Genomics Collaborative Inc.
and Accelrys, Inc.

We have also used acquisitions to strategically position and advance our
leadership as a genomics-based drug discovery company. In May 2001, we acquired
Artemis Pharmaceuticals GmbH, a privately held genetics and functional genomics
company, in a stock-for-stock transaction valued at approximately $24.2 million.
Located in Cologne and Tubingen, Germany, Artemis is focused on the use of
vertebrate model genetic systems such as mice and zebrafish as tools for target
identification and validation. We co-founded Artemis in 1998 to expand our
access to vertebrate model system technologies. The two companies have worked
closely together since that time, and the acquisition creates a single,
worldwide drug discovery company with a broad array of biological systems and
other tools for rapid target identification and validation. This acquisition is
a continuation of our strategy to optimize all aspects of the drug discovery
process from target identification to clinical development.

In December 2001, we acquired Genomica Corporation, a publicly-traded
bioinformatics company, in a stock-for-stock transaction valued at $110.0
million. The transaction was structured as a tender offer for 100% of Genomica's
outstanding common stock to be followed by a merger of Genomica with a
wholly-owned subsidiary of Exelixis. The exchange offer was closed on December
28, 2001 and the subsequent merger completing the transaction occurred on
January 8, 2002. We believe that Genomica's substantial cash and investments
will significantly enhance our ability to move our drug discovery programs
forward and their software may be a useful tool over the next several years that
may be used to manage human data obtained during the clinical development of our
compounds.

We have a history of operating losses resulting principally from costs
associated with research and development activities, investment in core
technologies and general and administrative functions. As a result of planned
expenditures for future research and development activities, including
manufacturing and clinical development expenses for compounds in clinical
studies, we expect to incur additional operating losses for the foreseeable
future.

Acquisition of Genomica Corporation

On November 19, 2001, Exelixis and Genomica Corporation announced a definitive
agreement whereby we would acquire Genomica in a stock-for-stock transaction
valued at $110.0 million. The transaction was structured as an offer for 100%
of Genomica's outstanding common stock to be followed by a merger of Genomica
with a wholly-owned subsidiary of Exelixis. The offer commenced on November 29,
2001 and closed on December 28, 2001. On December 28, 2001, we accepted for
payment 22,911,969 shares of Genomica common stock, or 93.94% of the total
number of outstanding shares of common stock of Genomica. On January 8, 2002,
the acquisition of Genomica was completed. Upon the effectiveness of the
merger, Genomica became our wholly-owned subsidiary. The transaction, which was
accounted for under the purchase method of accounting, was effected through the
exchange of 0.28309 of a share of our common stock for each outstanding share of
Genomica common stock. A total of approximately 6.9 million shares of our
common stock were issued for all of the outstanding shares of Genomica common
stock.

The purchase price for Genomica, which for financial accounting purposes was
valued at $110.0 million, was allocated to the assets acquired and the
liabilities assumed based on their estimated fair values at the date of
acquisition, as determined by management based on an independent valuation. As
a result of this transaction, we recorded net tangible assets of $106.2 million,
developed technology of $0.4 million, which will be amortized over two years,
and goodwill of $3.4 million. At the same time, we recorded a goodwill
impairment charge of $2.7 million, which was expensed in the current year to
operations. The impairment was calculated in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121")
by estimating the present value of future cash flows for the ongoing Genomica
licensing business using a risk adjusted discount rate. The impaired goodwill
represents excess purchase price which we view as economically equivalent to
financing costs for the acquired cash and investments. We plan to use the cash
and investments acquired to fund our research and development programs. We also
gained access to complementary technology that may be useful in supporting our
clinical development efforts.

Under SFAS No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"), we will
apply the new rules of accounting for goodwill and other intangible assets
beginning in the first quarter of 2002. Accordingly, goodwill and other
intangible assets deemed to have indefinite lives will no longer be amortized
but will be subject to annual impairment tests in accordance with SFAS 142.

Acquisition of Artemis Pharmaceuticals

In May 2001, we acquired a majority of the outstanding capital stock of Artemis
Pharmaceuticals GmbH, a privately held genetics and functional genomics company
organized under the laws of Germany. The transaction, which was accounted for
under the purchase method of accounting, was effected through the exchange of
shares of our common stock for Deutschmark 1.00 of nominal value of Artemis
capital stock, using an exchange ratio of 4.064 to one. Approximately 1.6
million shares of our common stock were issued in exchange for 78% of the
outstanding capital stock of Artemis held by Artemis stockholders. In addition,
we received a call option (the "Call Option") from, and issued a put option (the
"Put Option") to, certain stockholders of Artemis (the "Option Holders") for the
issuance of approximately 480,000 shares of our common stock in exchange for the
remaining 22% of the outstanding capital stock of Artemis held by the Option
Holders. We may exercise the Call Option at any time from May 14, 2001 through
January 31, 2002, and the Option Holders may exercise their rights under the Put
Option at any time from April 1, 2002 through May 15, 2002. We exercised the
Call Option on 131,674 and 329,591 shares in December 2001 and January 2002,
respectively, which resulted in an increase to goodwill of approximately $1.9
and $4.2 million, respectively. In addition, we issued fully vested rights to
purchase approximately 187,000 additional shares of our common stock to Artemis
employees in exchange for such employees' vested options formerly representing
the right to purchase shares of Artemis capital stock pursuant to the Artemis
Employee Phantom Stock Option Program. Artemis provides us with technologies
related to the following two species: zebrafish and mice. These technologies
will be used in our research and development efforts.

The purchase price for Artemis, which for financial accounting purposes was
valued at $24.2 million, was allocated to the assets acquired and the
liabilities assumed based on their estimated fair values at the date of
acquisition, as determined by management based upon an independent valuation.
As a result of this transaction, we recorded expense associated with the
purchase of in-process research and development of $6.7 million, net tangible
assets of $2.8 million and intangible assets (including goodwill) of $14.7
million, the majority of which was being amortized over 15 years until December
31, 2001. Under SFAS 142, we will apply the new rules of accounting for
goodwill and other intangible assets beginning in the first quarter of 2002.
Accordingly, goodwill and other intangible assets deemed to have indefinite
lives will no longer be amortized but will be subject to annual impairment tests
in accordance with SFAS 142.

Acquisition of Exelixis Plant Sciences (formerly Agritope)

In December 2000, we completed our acquisition of Agritope, Inc. As a result of
the acquisition, Agritope became our wholly-owned subsidiary, and we
subsequently changed its name to Exelixis Plant Sciences, Inc. The transaction,
which was accounted for under the purchase method of accounting, was effected
through the exchange of 0.35 of a share of our common stock for each outstanding
share of Agritope capital stock. Approximately 1.7 million shares of our common
stock were issued in connection with the transaction. In addition, unexpired
and unexercised options and warrants to purchase shares of Agritope capital
stock were assumed by us pursuant to the transaction and converted into fully
vested options and warrants to purchase approximately 880,000 shares of our
common stock.

The purchase price for Agritope, which for financial accounting purposes was
valued at $93.5 million, was allocated to the assets acquired and the
liabilities assumed based on their estimated fair values at the date of
acquisition, as determined by an independent valuation. As a result of this
transaction, we recorded expense associated with the purchase of in-process
research and development of $38.1 million, net tangible liabilities of $3.6
million, and intangible assets (including goodwill) of $51.8 million, the
majority of which was being amortized over 15 years until December 31, 2001.
Under SFAS 142, we will apply the new rules of accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Accordingly, goodwill
and other intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance with SFAS
142.

Through our subsidiary, we develop improved plant products and traits and
provide technology for the agricultural industry. We acquired Vinifera, Inc.
("Vinifera") in connection with the purchase of Agritope (parent company of
Vinifera). Vinifera was organized as a majority-owned subsidiary and was engaged
in the grape vine propagation business. Because this business did not fit our
strategic objectives, at the date of the acquisition of Agritope, we committed
to a plan to sell the Vinifera operations. On March 31, 2001, we reduced our
ownership interest in Vinifera from 57% to 19% by selling 3.0 million shares of
Vinifera common stock back to Vinifera in consideration for $2.1 million in
interest bearing promissory notes. As a result of the sale of Vinifera common
stock back to Vinifera, we deconsolidated Vinifera, excluded our share of
Vinifera's operating losses for the first quarter of 2001 of $275,000, and
recorded the following amounts as an adjustment to goodwill recorded in
connection with the acquisition of Agritope: a write-down of the value of
acquired developed technology attributable to Vinifera of $435,000, a gain on
sale of Vinifera shares of $590,000 and a promissory note reserve of $1,700,000.
The net adjustment was an increase to goodwill in the amount of $675,000.
Beginning April 1, 2001, we accounted for our remaining investment in Vinifera
using the cost method.

Due to risks associated with collection, as of December 31, 2001, we reserved
for 100% of these promissory notes. Due to a significant decline in the
operating performance of Vinifera, in December 2001, we wrote down our remaining
cost-basis investment in Vinifera to zero. We were advised in March 2002 that
Vinifera was in the process of being liquidated.

Acquisition of MetaXen Assets

In July 1999, we acquired substantially all the assets of MetaXen, a
biotechnology company focused on molecular genetics. In addition to paying cash
consideration of $0.9 million, we assumed a note payable relating to certain
acquired assets with a principal balance of $1.1 million. We also assumed
responsibility for a facility lease relating to the office and laboratory space
occupied by MetaXen.

At the time of the acquisition, MetaXen had an existing research collaboration
with Eli Lilly & Company. This agreement provided for sponsored research
payments to be made to MetaXen. We completed the work under this arrangement in
October 1999. Accordingly, we received and recognized revenues of approximately
$0.2 million in fulfillment of that arrangement.

Critical Accounting Policies

We believe the following are our critical accounting policies:

Revenue Recognition

Most of our revenues are generated from complex research and licensing
arrangements. These research and licensing arrangements may include up-front
non-refundable payments. Although these up-front payments are generally
non-refundable, under generally accepted accounting principles (GAAP) we defer
the revenues under these arrangements and recognize the revenues on a
straight-line basis over the relevant periods specified in the agreements,
generally the research term. Our research and license arrangements may also
include milestone payments. Although these milestone payments are generally
non-refundable once the milestone is achieved, we recognize the milestone
revenues on a straight-line basis over the contractual term of the arrangement.
This typically results in a portion of the milestone being recognized at the
date of the milestone is achieved, and the balance being recognized over the
remaining term of the agreement. It is our understanding that there is diversity
in practice on the recognition of milestone revenue. Other companies have
adopted an alternative acceptable milestone revenue recognition policy whereby
the full milestone fee is recognized upon completion of the milestone. If we had
adopted such a policy, our revenues recorded to date would have increased and
our deferred revenues would have decreased by an immaterial amount compared to
total revenue recognized. Revenues from chemistry collaborations are generally
recognized upon the delivery of accepted compounds.

Exit Costs

Prior to the December 28, 2001 acquisition date for Genomica, we began to
formulate an exit plan for Genomica to improve the operating efficiency of the
combined company. This plan was based upon a restructuring plan Genomica
implemented in October 2001 and called for the reduction of substantially all of
Genomica's workforce and the abandonment of leased facilities in Boulder,
Colorado and Sacramento, California. These activities are expected to be
completed during the first half of 2002. Certain key terminated individuals were
retained as consultants by us to assist in further licensing and development of
Genomica's technology to third parties. As of December 31, 2001, we have
recorded significant reserves pertaining to employee separation costs and the
settlement of contractual obligations, such as operating lease commitments,
resulting from these actions. The actual costs related to the exit activities
may differ from the amounts recorded as of December 31, 2001. For example, we
have reserved for our maximum obligations under Genomica's operating lease
commitments. However, these operating lease commitments may be resolved in a
more favorable manner, such as the possibility of successfully subleasing the
abandoned space. Conversely, we may not be able to resolve other contractual
obligations at the amounts we have provided as of December 31, 2001.

Goodwill and Intangible Impairment

As of December 31, 2001, our consolidated balance sheet includes approximately
$69.5 million of goodwill and other intangible assets. Under generally accepted
accounting principles, we will evaluate goodwill for impairment on an annual
basis and on an interim basis if events or changes in circumstances between
annual impairment tests indicate that the asset might be impaired. We will also
evaluate other intangible assets for impairment when impairment indicators are
identified. In assessing the recoverability of our goodwill and other
intangibles, we must make assumptions regarding estimated future cash flows and
other factors to determine the fair value of the respective assets. These
estimates include forecasted revenues, which are inherently difficult to
predict. If these estimates or their related assumptions change in the future,
we may be required to record impairment charges for these assets. Furthermore,
our impairment evaluation of goodwill will require management to exercise
judgment in the identification of our reporting units. The impairment test for
goodwill will be performed at the reporting unit level, which may be one level
below the operating segments disclosed in our current financial statements,
depending upon whether certain criteria are met.

Contingencies

We are subject to proceedings, lawsuits and other claims related to
environmental, intellectual property, product, employment and other matters. We
are required to assess the likelihood of any adverse judgments or outcomes to
these matters as well as potential ranges of probable losses. A determination of
the amount of reserves required, if any, for these contingencies are made after
careful analysis of each individual issue. The required reserves may change in
the future due to new developments in each matter or changes in approach such as
a change in settlement strategy in dealing with these matters.

Results of Operations

Comparison of Fiscal Years Ended December 31, 2001, 2000 and 1999

Total Revenues

Total revenues were $41.0 million for the year ended December 31, 2001, compared
to $24.8 million in 2000 and $10.5 million in 1999. The increase from 2000 to
2001 resulted principally from license and contract revenues earned from the
signing of new collaboration agreements with Protein Design Labs and
Bristol-Myers Squibb, additional revenues under our existing collaborative
agreements with Bayer, Bristol-Myers Squibb, Dow Agrosciences and Aventis and,
to a lesser extent, accelerated revenue recognition related to the mutually
agreed termination of our collaboration with Pharmacia which terminated in
February 2002. In 2000, revenues increased from 1999 due to additional license
and contract revenues earned from existing collaborations with Bayer, Pharmacia
and Bristol-Myers Squibb as well as revenues from a new collaboration with Dow
AgroSciences.

Research and Development Expenses

- - Increased Personnel - Staffing costs at December 31, 2001 increased by
approximately 69% to approximately $32.0 million from December 31, 2000. The
increase was to support new collaborative arrangements and Exelixis' internal
proprietary research efforts, including increased expenses related to staff
hired with the acquisition of Artemis in May 2001 and Agritope in December 2000.
Salary, bonuses, related fringe benefits, recruiting and relocation costs are
included in personnel costs. We expect these personnel costs to increase
further as we continue to build our organization.

- - Increased Lab Supplies - As a result of the increase in personnel and the
significant expansion of drug discovery operations, lab supplies increased 85%
to approximately $15.5 million during 2001.

- - Increased Licenses and Consulting - To support new collaborative
arrangements and further development of proprietary programs, license and
consulting expenses increased 100% to approximately $5.6 million during 2001.

As part of our new collaboration with Bristol-Myers Squibb in July 2001, we
received an exclusive worldwide license to develop and commercialize a selected
analogue of the Bristol-Myers Squibb anticancer compound, DEAE Rebeccamycin.
Phase I trials of DEAE Rebeccamycin have been completed and demonstrated an
acceptable safety profile. In ongoing Phase II trials, being conducted by the
National Cancer Institute, the compound has demonstrated activity against some
tumor types. Planning for additional clinical studies is currently underway and
should be finalized later in 2002. During 2001 we established a clinical
research and development staff and we plan to grow this staff in future years.
We currently do not have manufacturing capabilities or experience necessary to
produce materials for clinical trials. We plan to rely on collaborators and
third-party contractors to produce materials for clinical trials. We expect
clinical costs will increase in the future as we enter clinical trials for new
product candidates and additional trials for DEAE Rebeccamycin. We currently do
not have estimates of total costs to reach the market by a particular drug
candidate or in total. Our potential therapeutic products are subject to a
lengthy and uncertain regulatory process that may not result in the necessary
regulatory approvals, which could adversely affect our ability to commercialize
products. In addition, clinical trials on our potential products may fail to
demonstrate safety and efficacy, which could prevent or significantly delay
regulatory approval.

The increases in research and development expenses from 2000 and 1999 were due
primarily to increased staffing and other personnel-related costs and non-cash
stock compensation expense (as described below). These expenses were incurred
to support new collaborative arrangements and proprietary programs.

We expect to continue to devote substantial resources to research and
development, and it expects that research and development expenses will continue
to increase in absolute dollar amounts in the future as we continue to advance
drug discovery and development programs, including clinical development.

General and Administrative Expenses

General and administrative expenses consist primarily of staffing costs to
support our research activities, facilities costs and professional expenses,
such as legal fees. General and administrative expenses were $19.2 million for
the year ended December 31, 2001, compared to $15.7 million in 2000 and $7.6
million in 1999. The increase in 2001 over 2000 was primarily due to increased
staffing in support of our expanded research and development activities,
partially offset by a decrease in non-cash stock compensation expense of $2.2
million (as described below). The increase in general and administrative
expenses in 2000 compared to 1999 related primarily to increased recruiting
expenses, non-cash stock compensation expense (as described below) and rent for
facilities and expenses associated with moving into our corporate headquarters
in South San Francisco.

Stock Compensation Expense

Deferred stock compensation for options granted to our employees is the
difference between the fair value for financial reporting purposes of our common
stock on the date such options were granted and their exercise price. Deferred
stock compensation for options granted to consultants has been determined based
upon estimated fair value, using the Black-Scholes option valuation model. As
of December 31, 2001, we have approximately $4.1 million of remaining deferred
stock compensation, related to stock options granted to consultants and
employees. In connection with the grant of stock options to employees and
consultants, We recorded no deferred stock compensation in the year ended
December 31, 2001, compared to $10.0 million in 2000 and $15.9 million in 1999.
These amounts were recorded as a component of stockholders' equity (deficit) and
are being amortized as stock compensation expense over the vesting periods of
the options, which is generally four years. We recognized stock compensation
expense of $7.4 million for the year ended December 31, 2001, compared to $14.0
million in 2000 and $3.5 million in 1999. The decrease in stock compensation
expense in 2001 compared to 2000 primarily results from the accelerated
amortization method used for accounting purposes. The increase in stock
compensation expense in 2000 compared to 1999 was due the increase in deferred
stock charges at the time of our initial public offering.

During April 2001, we granted approximately 545,000 supplemental stock options
("Supplemental Options") under the 2000 Equity Incentive Plan to certain
employees (excluding officers and directors) who had stock options with exercise
prices greater than $16.00 per share under the 2000 Equity Incentive Plan. The
number of Supplemental Options granted was equal to 50% of the corresponding
original grant held by each employee. The Supplemental Options have an exercise
price of $16.00, vest monthly over a two-year period beginning April 1, 2001,
and have a 27-month term. The vesting on the corresponding original stock
options was suspended and will resume in April 2003 following the completion of
vesting of the Supplemental Options. This new grant constitutes a synthetic
repricing as defined in FASB Interpretation Number 44, "Accounting for Certain
Transactions Involving Stock Compensation" and will result in certain options
being reported using the variable plan method of accounting for stock
compensation expense until they are exercised, forfeited or expire. For the year
ended December 31, 2001, compensation expense recorded for the Supplemental
Options was $246,000.

Acquired In-Process Research and Development

The valuation of the purchased in-process research and development related to
the Artemis acquisition of $6.7 million was determined by management based upon
the results of an independent valuation using the income approach for each of
the three significant in-process projects. The in-process projects relate
primarily to the development of technologies that use vertebrate genetic model
organisms, zebra-fish and mice, to identify and functionally validate novel
genes in vivo. These genes can be used as novel screening targets or as the
basis for secreted proteins in clinically and commercially relevant diseases.
The in-process projects are expected to be completed in December of 2002. The
income approach estimates the value of each acquired project in-process based on
its expected future cash flows. The valuation analysis considered the
contribution of the core technology as well as the percent complete of each
in-process research and development project. The expected present value of the
cash flows associated with the in-process research and development projects was
computed using a risk adjusted rate of return of 30%, which is considered
commensurate with the overall risk and percent complete of the in-process
projects. The purchased in-process technology was not considered to have reached
technological feasibility, and it has no alternative future use, accordingly, it
was recorded as a component of operating expenses.

In connection with the Agritope purchase in fiscal year 2000, we recorded
expense of $38.1 million relating to acquired in-process research and
development. The valuation of the purchased in-process research and development
was based upon the results of an independent valuation using the income approach
for each of the ten projects in-process. The in-process projects relate
primarily to the development of disease and insect resistant fruits and
vegetables and are expected to be completed over approximately the next three
and one-half years. The income approach estimates the value of each acquired
project in-process based on its expected future cash flows. The valuation
analysis considered the contribution of the core technology as well as the
percent complete of each in-process research and development project. The
expected present value of the cash flows associated with the in-process research
and development projects was computed using a risk adjusted rate of return of
35% which is considered commensurate with the overall risk and percent complete
of the in-process projects. The purchased technology was not considered to have
reached technological feasibility, and it has no alternative future use,
accordingly, it was recorded as a component operating expense.

Amortization of Goodwill and Other Intangibles

Goodwill and intangibles result from our acquisitions of Genomica, Artemis and
Agritope. Amortization of goodwill and intangibles was $5.1 million for the
year ended December 31, 2001, compared to $260,000 in 2000 and zero in 1999.
The increase in 2001 was the result of amortization of goodwill and intangibles
from the Agritope acquisition for 12 months compared to only one month in 2000
as well as the amortization of goodwill and intangibles from the acquisition of
Artemis.

Under SFAS 142, we will apply the new rules of accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Accordingly, goodwill
and other intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance with SFAS
142.

Interest Income (Expense), Net

Net interest income was $4.1 million for the year ended December 31, 2001,
compared to $5.6 million of net income in 2000 and $46,000 of net income in
1999. Interest income (expense), net consists of interest earned on cash, cash
equivalents and short-term investments, reduced by interest expense incurred on
notes payable and capital lease obligations. The decrease in 2001 from 2000 was
primarily attributable to an increase in interest expense related to notes
payables and capital leases. The increase in 2000 from 1999 primarily relates
to interest income earned on the proceeds from our initial public offering.

Minority Interest and Equity in Net Loss of Affiliated Company

On March 31, 2001, we reduced our ownership interest in Vinifera, Inc. to 19%.
Beginning April 1, 2001, we accounted for our remaining investment in Vinifera
using the cost method. Due to a significant decline in the operating
performance of Vinifera, in December 2001, we wrote down our investment in
Vinifera to zero.

For 2000, minority interest in subsidiary net loss represents the minority
shareholders' portion of Vinifera's operating loss. Net loss reported by us,
which is attributable to the minority shareholders, was approximately $100,000
in 2000. Since we owned in excess of 50% of Vinifera, we consolidated
Vinifera's operating results; a portion of which was then allocated to the
minority shareholders as minority interest in proportion to their ownership
interest, partially offsetting our operating loss.

Income Taxes

We have incurred net operating losses since inception and, consequently, have
not recorded any federal or state income taxes.

As of December 31, 2001, we had federal and California net operating loss
carryforwards of approximately $99.0 million and $50.0 million, respectively. We
had federal research and development credit carryforwards of approximately $3.0
million in each jurisdiction. If not utilized, the net operating loss and credit
carryforwards expire at various dates beginning in 2005. Under the Internal
Revenue Code, as amended, and similar state provisions, certain substantial
changes in our ownership could result in an annual limitation on the amount of
net operating loss and credit carryforwards that can be utilized in future years
to offset future taxable income. Annual limitations may result in the expiration
of net operating loss and credit carry forwards before they are used.

Liquidity and Capital Resources

Since inception, we have financed our operations primarily through private
placements of preferred stock, loans, equipment lease financings and other loan
facilities and payments from collaborators. In addition, during the second
quarter of 2000, we completed our initial public offering raising $124.5 million
in net cash proceeds. In addition, in December 2001, we acquired Genomica,
Inc., including $109.6 million in cash and investments. As of December 31,
2001, we had approximately $227.7 million in cash, cash equivalents and
short-term investments.

Our operating activities used cash of $23.8 million for the year ended December
31, 2001, compared to $12.9 million in 2000 and $7.3 million in 1999. Cash used
in operating activities during each year related primarily to funding net
operating losses, partially offset by an increase in deferred revenue from
collaborators and non-cash charges related to acquired in-process research and
development, depreciation and amortization of deferred stock compensation.

Our investing activities provided cash of $5.4 million for the year ended
December 31, 2001, compared to cash used of $96.4 million in 2000 and $6.5
million in 1999. The cash provided in 2001 consisted of cash resulting from the
acquisitions of Artemis and Genomica, proceeds from maturities of short-term
investments and sale of an investment before maturity, partially offset by
purchases of property and equipment and purchases of short-term investments. The
use of cash for 2000 consists primarily of purchases of short-term investments
and property and equipment, partially offset by proceeds from maturities of
short-term investments and proceeds from sale-leaseback of equipment. In 1999,
investing activities consist primarily of purchases of property, equipment and
short-term investments. We expect to continue to make significant investments in
research and development and its administrative infrastructure, including the
purchase of property and equipment to support its expanding operations.

Our financing activities provided cash of $34.4 million for the year ended
December 31, 2001, compared to $123.5 million in 2000 and $17.1 million in 1999.
The cash provided in 2001 consisted of $10.0 million proceeds from the issuance
of common stock to Bristol-Myers Squibb as part of the collaboration agreement
and $30.0 million from a convertible note with Protein Design Labs, partially
offset by principal payments on capital leases and note payable. Cash provided
from financing activities in 2000 and 1999 consisted primarily of proceeds from
our initial public offering, sales of preferred stock, and amounts received
under various financing arrangements.

We believe that our current cash and cash equivalents, short-term investments
and funding to be received from collaborators, will be sufficient to satisfy our
anticipated cash needs for at least the next two years. Changes in our
operating plan as well as factors described in our "Risk Factors" elsewhere in
this Annual Report on Form 10-K could require us to consume available resources
much sooner than we expect. It is possible that we will seek additional
financing within this timeframe. We may raise additional funds through public
or private financing, collaborative relationships or other arrangements. In
July 2001, we filed a registration statement on Form S-3 to offer and sell up to
$150.0 million of common stock. We have no current commitments to offer or sell
securities with respect to shares that may be offered or sold pursuant to that
filing. We cannot assure you that additional funding, if sought, will be
available or, even if available, will be available on terms favorable to us.
Further, any additional equity financing may be dilutive to stockholders, and
debt financing, if available, may involve restrictive covenants. Our failure to
raise capital when needed may harm its business and operating results.

Commitments

We do not have any "special purpose" entities that are unconsolidated in our
financial statements that are reasonably likely to materially affect liquidity
or the availability of or requirements of cash. We are also not involved with
non-exchange traded commodity contracts accounted for at fair value. We have no
commercial commitments with related parties, except for employee loans. We have
contractual obligations in the form of operating and capital leases, notes
payable and licensing agreements. These are described in further detail in
Notes 7 and 12 of Notes to Consolidated Financial Statements. The following
chart details our contractual obligations (in thousands):

Payments Due by Period (000's)
--------------------------------------------
Less than 1-3 4-5 After 5
Contractual Obligations Total 1 year years years years
- ---------------------------------- -------- ------- ------- ------- -------

Capital lease obligations. . . . . $ 18,804 $ 6,625 $10,866 $ 1,313 $ -
Operating leases . . . . . . . . . 81,158 7,102 12,549 10,325 51,182
Convertible promissory notes . . . 30,000 - - 30,000 -
Notes payable. . . . . . . . . . . 1,852 1,200 652 - -
Licensing agreements . . . . . . . 6,672 1,454 2,357 1,907 954
-------- ------- ------- ------- -------
Total contractual cash obligations $138,486 $16,381 $26,424 $43,545 $52,136
======== ======= ======= ======= =======

We had outstanding loans aggregating $937,000 and $494,000 to certain officers
and employees at December 31, 2001 and 2000, respectively. The notes are general
recourse or collateralized by certain real property assets, bear interest at
rates ranging from 4.82% to 9.50% and have maturities through 2005. The
principal plus accrued interest will be forgiven at various rates over three to
four years from the employees' date of employment with us. If an employee leaves
us, all unpaid and unforgiven principal and interest will be due and payable
within 60 days.

As of December 31, 2001, we had outstanding loans aggregating $2.2 million to
our stockholders. The loans were issued to enable certain employees to purchase
stock pursuant to their employee stock options. The loans bear interest at
rates ranging from 5.25% to 6.50% and mature at various times through February
2004.

Recent Accounting Pronouncements

In July 2001, the FASB issued SFAS No. 141 "Business Combinations" ("SFAS No.
141"), which establishes financial accounting and reporting for business
combinations and supersedes APB Opinion No. 16, "Business Combinations," and
FASB Statement No. 38, "Accounting for Preacquisition Contingencies of Purchased
Enterprises." SFAS No. 141 requires that all business combinations be accounted
for using one method, the purchase method. The provisions of SFAS No. 141 apply
to all business combinations initiated after June 30, 2001. The adoption of SFAS
No. 141 had no material impact on our financial reporting and related
disclosures.

In July 2001, the FASB issued SFAS 142, which establishes financial accounting
and reporting for acquired goodwill and other intangible assets and supersedes
APB Opinion No. 17, "Intangible Assets." SFAS 142 addresses how intangible
assets that are acquired individually or with a group of other assets (but not
those acquired in a business combination) should be accounted for in financial
statements upon their acquisition, and after they have been initially recognized
in the financial statements. The provisions of SFAS 142 are effective for fiscal
years beginning after December 15, 2001. We will adopt SFAS 142 during the first
quarter of fiscal 2002, and are in the process of evaluating the impact of
implementation on our financial position and results of operations. Application
of the non-amortization provisions of the Statement is expected to result in a
decrease to net loss of approximately $4.7 million in 2002, as compared to the
prior accounting requirements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our investments are subject to interest rate risk, and our interest income may
fluctuate due to changes in U.S. interest rates. By policy, we limit our
investments to money market instruments, debt securities of U.S. government
agencies and debt obligations of U.S. corporations. We manage market risk by our
diversification requirements, which limit the amount of our portfolio that can
be invested in a single issuer. We manage credit risk by limiting our purchases
to high quality issuers. Through our money manager, we maintain risk management
control systems to monitor interest rate risk. The risk management control
systems use analytical techniques, including sensitivity analysis. A
hypothetical 1% adverse move in interest rates along the entire interest rate
yield curve would cause an approximately $1.7 million and $366,000 decline in
the fair value of our financial instruments at December 31, 2001 and 2000,
respectively.

All highly liquid investments with an original maturity of three months or less
from the date of purchase are considered cash equivalents. Exelixis views its
available-for-sale portfolio as available for use in current operations.
Accordingly, we have classified all investments with an original maturity date
greater than three months as short-term, even though the stated maturity date
may be one year or more beyond the current balance sheet date.

Due to our German operations, we have market risk exposure to adverse changes in
foreign currency exchange rates. The revenues and expenses of our German
subsidiaries were denominated in Deutschmark but changed to Eurodollars on
January 1, 2002. At the end of each reporting period, the revenues and expenses
of these subsidiaries are translated into U.S. dollars using the average
currency rate in effect for the period, and assets and liabilities are
translated into U.S. dollars using the exchange rate in effect at the end of the
period. Fluctuations in exchange rates, therefore, impact our financial
condition and results of operations as reported in U.S. dollars. To date, we
have not experienced any significant negative impact as a result of fluctuations
in foreign currency markets.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

EXELIXIS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page#
Report of Ernst & Young LLP, Independent Auditors . . . . . . 37
Report of PricewaterhouseCoopers LLP, Independent Auditors. . 38
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . 39
Consolidated Statements of Operations . . . . . . . . . . . . 40
Consolidated Statements of Stockholders' Equity (Deficit) . . 41
Consolidated Statements of Cash Flows.. . . . . . . . . . . . 42
Notes to Consolidated Financial Statements. . . . . . . . . . 42

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of Exelixis, Inc.

We have audited the accompanying consolidated balance sheet of Exelixis,
Inc. as of December 31, 2001 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Exelixis, Inc.
at December 31, 2001 and the consolidated results of its operations and its cash
flows for the year then ended in conformity with accounting principles generally
accepted in the United States.

/s/ Ernst & Young LLP

Palo Alto, California
February 1, 2002

REPORT OF PRICEWATERHOUSECOOPERS LLP, INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Exelixis, Inc.

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity (deficit)
and of cash flows present fairly, in all material respects, the financial
position of Exelixis, Inc. and its subsidiaries at December 31, 2000, and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

San Jose, California
February 2, 2001

EXELIXIS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

December 31,
----------------------
2001 2000
---------- ----------

ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . $ 35,584 $ 19,552
Short-term investments . . . . . . . . . . . . . . . . . . . . 192,116 93,000
Other receivables. . . . . . . . . . . . . . . . . . . . . . . 4,026 1,493
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . - 3,612
Other current assets . . . . . . . . . . . . . . . . . . . . . 2,873 1,987
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . 234,599 119,644

Property and equipment, net. . . . . . . . . . . . . . . . . . . 36,500 23,480
Related party receivables. . . . . . . . . . . . . . . . . . . . 937 494
Goodwill and other intangibles, net. . . . . . . . . . . . . . . 69,483 58,674
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 5,095 2,622
---------- ----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . $ 346,614 $ 204,914
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses. . . . . . . . . . . . . $ 10,837 $ 3,720
Accrued benefits . . . . . . . . . . . . . . . . . . . . . . . 5,000 1,990
Obligation assumed to exit certain activities of Genomica. . . 2,919 -
Accrued merger and acquisition costs . . . . . . . . . . . . . 2,217 4,340
Line of credit . . . . . . . . . . . . . . . . . . . . . . . . - 1,484
Current portion of capital lease obligations . . . . . . . . . 5,947 3,826
Current portion of notes payable . . . . . . . . . . . . . . . 1,200 1,664
Advances from minority shareholders. . . . . . . . . . . . . . - 868
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . 12,237 6,233
---------- ----------
Total current liabilities. . . . . . . . . . . . . . . . . . 40,357 24,125

Capital lease obligations. . . . . . . . . . . . . . . . . . . . 11,144 6,341
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . 652 1,635
Convertible promissory note. . . . . . . . . . . . . . . . . . . 30,000 -
Acquisition liability. . . . . . . . . . . . . . . . . . . . . . 6,871 -
Minority interest in consolidated subsidiary . . . . . . . . . . - 1,044
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . 20,370 9,035
---------- ----------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . 109,394 42,180
---------- ----------
Commitments

Stockholders' equity:
Preferred stock, $0.001 par value, 10,000,000 authorized
and no shares issued . . . . . . . . . . . . . . . . . . . . - -
Common stock, $0.001 par value; 100,000,000 shares authorized;
issued and outstanding: 56,150,142 and 46,732,305 shares
at December 31, 2001 and 2000, respectively. . . . . . . . . 56 47
Additional paid-in-capital . . . . . . . . . . . . . . . . . . 444,229 304,339
Notes receivable from stockholders . . . . . . . . . . . . . . (2,205) (1,805)
Deferred stock compensation, net . . . . . . . . . . . . . . . (4,137) (10,174)
Accumulated other comprehensive income . . . . . . . . . . . . 501 365
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . (201,224) (130,038)
---------- ----------
Total stockholders' equity . . . . . . . . . . . . . . . . . 237,220 162,734
---------- ----------

Total liabilities and stockholders' equity . . . . . . . . . $ 346,614 $ 204,914
========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.

EXELIXIS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

Year Ended December 31,
-------------------------------

2001 2000 1999
--------- --------- ---------

Revenues:
Contract and government grants . . . . . . . . . . . $ 33,518 $ 20,983 $ 9,464
License. . . . . . . . . . . . . . . . . . . . . . . 7,488 3,776 1,046
--------- --------- ---------
Total revenues . . . . . . . . . . . . . . . . . . 41,006 24,759 10,510
--------- --------- ---------

Operating expenses:
Research and development (1) . . . . . . . . . . . . 82,700 51,685 21,653
Selling, general and administrative (2). . . . . . . 19,166 15,678 7,624
Acquired in-process research and development . . . . 6,673 38,117 -
Impairment of goodwill . . . . . . . . . . . . . . . 2,689 - -
Amortization of intangibles. . . . . . . . . . . . . 5,092 260 -
--------- --------- ---------
Total operating expenses . . . . . . . . . . . . . 116,320 105,740 29,277
--------- --------- ---------

Loss from operations . . . . . . . . . . . . . . . . . (75,314) (80,981) (18,767)

Other income (expense):
Interest income. . . . . . . . . . . . . . . . . . . 6,316 6,225 571
Interest expense . . . . . . . . . . . . . . . . . . (2,186) (679) (525)
Other income(expense), net . . . . . . . . . . . . . (2) 23 -
--------- --------- ---------
Total other income (expense) . . . . . . . . . . . 4,128 5,569 46

Minority interest in consolidated subsidiary net loss. - 101 -
--------- --------- ---------

Net loss . . . . . . . . . . . . . . . . . . . . . . . $(71,186) $(75,311) $(18,721)
========= ========= =========

Basic and diluted net loss per share . . . . . . . . . $ (1.53) $ (2.43) $ (4.60)
========= ========= =========
Shares used in computing basic and
diluted net loss per share . . . . . . . . . . . . . 46,485 31,031 4,068
========= ========= =========
<FN>

(1) Includes stock compensation expense of $5,004, $9,433 and $2,241 in 2001,
2000 and 1999, respectively.

(2) Includes stock compensation expense of $2,360, $4,589 and $1,281 in 2001,
2000 and 1999, respectively.

The accompanying notes are an integral part of these consolidated financial statements.

EXELIXIS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)

Notes
Class B Additional Receivable
Common Stock Common Stock Paid-in From
Shares Amount Shares Amount Capital Stockholders
------------ ------------- ----------- ---------- --------- --------------

Balance at December 31, 1998 . . . . . . . . . 4,001,505 $ 4 526,819 $ 1 $ 2,979 $ (240)
Exercise of stock options. . . . . . . . . . . 1,057,300 1 - - 267 -
Issuance of stock purchase warrants. . . . . . - - - - 391 -
Deferred stock compensation. . . . . . . . . . - - - - 15,886 -
Amortization of deferred stock compensation. . - - - - - -
Conversion of Class B common
stock into common stock. . . . . . . . . . . 1,200,000 1 (526,819) (1) - -
Net loss and total comprehensive loss. . . . . - - - - - -
------------ ------------- ----------- ---------- --------- --------------

Balance at December 31, 1999 . . . . . . . . . 6,258,805 6 - - 19,523 (240)
Issuance of common stock under options,
warrants and stock purchase plan, net
of repurchases . . . . . . . . . . . . . . . 4,928,299 5 - - 3,782 (1,862)
Repayment of notes from stockholders for
the exercise of stock options. . . . . . . . - - - - - 297
Issuance of common stock, net of
offering costs . . . . . . . . . . . . . . . 10,465,000 10 - - 124,514 -
Issuance of common stock for acquisition . . . 1,721,776 2 - - 92,235 -
Conversion of preferred stock. . . . . . . . . 22,877,656 23 - - 46,757 -
Conversion of promissory note. . . . . . . . . 480,769 1 - - 7,499 -
Deferred stock compensation. . . . . . . . . . - - - - 10,029 -
Amortization of deferred stock compensation. . - - - - - -
Comprehensive loss:
Net loss . . . . . . . . . . . . . . . . . . - - - - - -
Unrealized gain on available
for sale securities. . . . . . . . . . . . - - - - - -
Comprehensive loss . . . . . . . . . . . . . - - - - - -
------------ ------------- ----------- ---------- --------- --------------

Balance at December 31, 2000 . . . . . . . . . 46,732,305 47 - - 304,339 (1,805)
Issuance of common stock under options,
warrants and stock purchase plan, net
of repurchases . . . . . . . . . . . . . . . 708,205 - - - 4,890 -
Repayment of notes from stockholders for
the exercise of stock options. . . . . . . . - - - - - 295
Notes receivable from stockholders . . . . . . - - - - - (695)
Issuance of common stock, BMS collaboration. . 600,600 1 - - 9,999 -
Issuance of common stock for acquisition . . . 8,109,032 8 - - 123,672 -
Variable compensation. . . . . . . . . . . . . - - - - 1,761 -
Deferred stock compensation related to
terminated employees . . . . . . . . . . . . - - - - (432) -
Amortization of deferred stock compensation. . - - - - - -
Comprehensive loss:
Net loss . . . . . . . . . . . . . . . . . . - - - - - -
Change in unrealized gain on available
for sale securities. . . . . . . . . . . . - - - - - -
Cumulative translation adjustment. . . . . . - - - - - -
Comprehensive loss . . . . . . . . . . . . . - - - - - -
------------ ------------- ----------- ---------- --------- --------------
Balance at December 31, 2001 56,150,142 $ 56 - $ - $444,229 $ (2,205)
============ ============= =========== ========== ========= ==============

Accumulated
Deferred Other Total
Stock Accumulated Comprehensive Stockholders'
Compensation Deficit Income Equity (Deficit)
--------------- --------------- ------------- -----------------

Balance at December 31, 1998 . . . . . . . . $ (1,803) $ (36,006) $ - $ (35,065)
Exercise of stock options. . . . . . . . . . - - - 268
Issuance of stock purchase warrants. . . . . - - - 391
Deferred stock compensation. . . . . . . . . (15,886) - - -
Amortization of deferred stock compensation. 3,522 - - 3,522
Conversion of Class B common
stock into common stock. . . . . . . . . . - - - -
Net loss and total comprehensive loss. . . . - (18,721) - (18,721)
--------------- --------------- ------------ -----------------

Balance at December 31, 1999 . . . . . . . . (14,167) (54,727) - (49,605)
Issuance of common stock under options,
warrants and stock purchase plan, net
of repurchases . . . . . . . . . . . . . . - - - 1,925
Repayment of notes from stockholders for
the exercise of stock options. . . . . . . - - - 297
Issuance of common stock, net of
offering costs . . . . . . . . . . . . . . - - - 124,524
Issuance of common stock for acquisition . . - - - 92,237
Conversion of preferred stock. . . . . . . . - - - 46,780
Conversion of promissory note. . . . . . . . - - - 7,500
Deferred stock compensation. . . . . . . . . (10,029) - - -
Amortization of deferred stock compensation. 14,022 - - 14,022
Comprehensive loss:
Net loss . . . . . . . . . . . . . . . . . - (75,311) - (75,311)
Unrealized gain on available
for sale securities. . . . . . . . . . . - - 365 365
-----------------
Comprehensive loss . . . . . . . . . . . . - - - (74,946)
--------------- --------------- ------------ =================

Balance at December 31, 2000 . . . . . . . . (10,174) (130,038) 365 162,734
Issuance of common stock under options,
warrants and stock purchase plan, net
of repurchases . . . . . . . . . . . . . . - - - 4,890
Repayment of notes from stockholders for
the exercise of stock options. . . . . . . - - - 295
Notes receivable from stockholders . . . . . - - - (695)
Issuance of common stock, BMS collaboration. - - - 10,000
Issuance of common stock for acquisition . . - - - 123,680
Variable compensation. . . . . . . . . . . . - - - 1,761
Deferred stock compensation related to
terminated employees . . . . . . . . . . . 432 - - -
Amortization of deferred stock compensation. 5,605 - - 5,605
Comprehensive loss:
Net loss . . . . . . . . . . . . . . . . . - (71,186) - (71,186)
Change in unrealized gain on available
for sale securities. . . . . . . . . . . - - 236 236
Cumulative translation adjustment. . . . . - - (100) (100)
-----------------
Comprehensive loss . . . . . . . . . . . . - - - (71,050)
--------------- --------------- ------------ =================
Balance at December 31, 2001 . . . . . . . . $ (4,137) $ (201,224) $ 501 $ 237,220
=============== =============== ============ =================

The accompanying notes are an integral part of these consolidated financial
statements.

EXELIXIS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Year Ended December 31,
--------------------------------

2001 2000 1999
---------- ---------- ---------

Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (71,186) $ (75,311) $(18,721)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . 10,116 4,575 2,166
Stock compensation expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,364 14,022 3,522
Amortization of intangibles.. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,092 260 -
Impairment of goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,689 - -
Acquired in-process research and development. . . . . . . . . . . . . . . . . . . 6,673 38,117 -
Other.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23) (101) -
Changes in assets and liabilities:
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (75) (1,043) (35)
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,689) (2,206) (497)
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,150) (1,094) (81)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 41 -
Related party receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . (454) 125 (161)
Other long term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . - (104) 104
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . 2,816 240 3,064
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,059 9,612 3,317
---------- ---------- ---------

Net cash used in operating activities . . . . . . . . . . . . . . . . . . . . . . (23,768) (12,867) (7,322)
---------- ---------- ---------

Cash flows provided by (used in) investing activities:
Acquisitions, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,560 265 (870)
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . (9,094) (15,386) (4,100)
Proceeds from sale-leaseback of equipment . . . . . . . . . . . . . . . . . . . . . . 268 9,816 -
Proceeds from maturities of short-term investments. . . . . . . . . . . . . . . . . . 147,143 44,689 738
Proceeds from sale of investment before maturity. . . . . . . . . . . . . . . . . . . 9,372 - -
Purchases of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . (150,844) (135,821) (2,242)
---------- ---------- ---------

Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . 5,405 (96,437) (6,474)
---------- ---------- ---------

Cash flows from financing activities:
Proceeds from issuance of mandatorily redeemable convertible
preferred stock, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - 8,642
Proceeds from the issuance of common stock, net of offering costs . . . . . . . . . . 10,000 124,524 -
Proceeds from exercise of stock options
and warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 555 427 268
Proceeds from employee stock purchase plan. . . . . . . . . . . . . . . . . . . . . . 2,372 980 -
Repayment of notes from stockholders. . . . . . . . . . . . . . . . . . . . . . . . . 296 297 -
Principal payments on capital lease obligations . . . . . . . . . . . . . . . . . . . (4,519) (1,212) (933)
Proceeds from issuance of notes payable and convertible promissory note . . . . . . . 30,000 - 10,066
Principal payments on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . (4,349) (1,560) (905)
---------- ---------- ---------

Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . 34,355 123,456 17,138
---------- ---------- ---------

Effect of foreign exchange rates on cash and cash equivalents . . . . . . . . . . . . . 40 - -

Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . 16,032 14,152 3,342
Cash and cash equivalents, at beginning of year . . . . . . . . . . . . . . . . . . . . 19,552 5,400 2,058
---------- ---------- ---------

Cash and cash equivalents, at end of year . . . . . . . . . . . . . . . . . . . . . . . $ 35,584 $ 19,552 $ 5,400
========== ========== =========

Supplemental cash flow disclosure:
Property and equipment acquired under capital leases. . . . . . . . . . . . . . . . . $ 11,175 $ 10,415 $ -
Cash paid for interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,041 679 525

<FN>
The accompanying notes are an integral part of these consolidated financial statements.

EXELIXIS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 THE COMPANY AND A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Exelixis, Inc. ("Exelixis" or the "Company") is a biotechnology company whose
primary mission is to develop proprietary human therapeutics by leveraging our
integrated discovery platform to increase the speed, efficiency and quality of
pharmaceutical product discovery and development. The Company uses comparative
genomics and model system genetics to find new drug targets that Exelixis
believes would be difficult or impossible to uncover using other experimental
approaches. The Company's research is designed to identify novel genes and
proteins expressed by those genes, that, when changed, either decrease or
increase the activity in a specific disease pathway in a therapeutically
relevant manner. These genes and proteins represent either potential product
targets or drugs that may treat disease or prevent disease initiation or
progression. The Company's most advanced proprietary pharmaceutical program
focuses on drug discovery and development of small molecules in cancer. While
the Company's proprietary programs focus on drug discovery and development,
Exelixis believes that its proprietary technologies are valuable to other
industries whose products can be enhanced by an understanding of DNA or
proteins, including the agrochemical, agrichcultural and diagnostic industries.

On December 28, 2001, Exelixis acquired approximately 94% of the outstanding
common stock of Genomica Corporation ("Genomica"), a bio-informatics software
company. The transaction closed on January 8, 2002. As part of this
transaction, Exelixis received $109.6 million of cash and investments that will
significantly enhance its ability to move its drug discovery programs forward,
and Genomica's software, which may be a useful tool over the next several years
to manage human data obtained during the clinical development of Exelixis
compounds.

On May 14, 2001, Exelixis completed its acquisition of Artemis Pharmaceuticals,
GmbH ("Artemis") a privately-held genetics and functional genomics company.
Located in Cologne and Tubingen, Germany, Artemis is focused on the use of
vertebrate model genetic systems such as mice and zebrafish as tools for target
identification and validation. Exelixis co-founded Artemis in 1998 to expand
access to vertebrate model system technologies. The two companies have worked
closely together since that time, and the acquisition creates a single,
worldwide drug discovery company with a broad array of biological systems and
other tools for rapid target identification and validation. This acquisition is
a continuation of Exelixis' strategy to optimize all aspects of the drug
discovery process from target identification to clinical development.

On December 8, 2000, Exelixis completed its acquisition of Agritope, Inc. and
changed Agritope's name to Exelixis Plant Sciences, Inc. ("Agritope" or
"Exelixis Plant Sciences"). Exelixis Plant Sciences is an agricultural
biotechnology company that develops improved plant products and traits and
provides technology for the agricultural industry. The Company acquired
Vinifera, Inc. ("Vinifera") in connection with the purchase of Agritope (parent
company of Vinifera). Vinifera was organized as a majority-owned subsidiary and
was engaged in the grape vine propagation business. Because this business did
not fit with the strategic objectives of Exelixis, at the date of the
acquisition of Agritope, the management of Exelixis committed to a plan to sell
the Vinifera operations. On March 31, 2001, the Company reduced its ownership
interest in Vinifera from 57% to 19% by selling 3.0 million shares of Vinifera
common stock back to Vinifera in consideration for $2.1 million in interest
bearing promissory notes. Beginning April 1, 2001, the Company accounted for
its remaining investment in Vinifera using the cost method.

In connection with the Agritope acquisition, Exelixis also acquired interests in
Agrinomics LLC ("Agrinomics"), which is a 50% owned subsidiary that conducts a
gene discovery program, and Superior Tomato Associates, LLC ("Superior Tomato"),
which was a 66-2/3% owned subsidiary formed to develop and market longer-lasting
tomatoes. The Company dissolved Superior Tomato during 2001, which resulted in
no material impact to its financial results. Agrinomics continues in existence.

Basis of Consolidation

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Genomica, Artemis, Exelixis Deutschland GmbH,
Cell Fate, Inc. and Exelixis Plant Sciences. All significant intercompany
balances and transactions have been eliminated.

The Company records its minority ownership interests in Genoptera LLC and
Agrinomics using the equity method of accounting.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ significantly from those
estimates.

Initial Public Offering

On April 14, 2000, the Company completed an initial public offering in which it
sold 9,100,000 shares of common stock at $13.00 per share for net cash proceeds
of approximately $108.0 million, net of underwriting discounts, commissions and
other offering costs. Upon the closing of the offering, all the Company's
mandatorily redeemable convertible preferred stock converted into 22,877,656
shares of common stock. After the offering, the Company's authorized capital
consisted of 100,000,000 shares of common stock, $0.001 par value, and
10,000,000 shares of preferred stock, $0.001 par value. On May 1, 2000, the
underwriters exercised the over-allotment option to purchase an additional
1,365,000 shares, resulting in net cash proceeds of approximately $16.5 million.

Stock Split

In February 2000, the Company's Board of Directors and stockholders authorized a
4-for-3 reverse split of the Company's common stock. The reverse stock split
became effective on April 7, 2000. The accompanying consolidated financial
statements have been adjusted retroactively to reflect the stock split.

Cash, Cash Equivalents and Short-term Investments

The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. The Company invests its
excess cash in high-grade, short-term commercial paper and money market funds,
which invest in U.S. Treasury securities that are subject to minimal credit and
market risk.

All short-term investments are classified as available-for-sale and therefore
carried at fair value. The Company views its available-for-sale portfolio as
available for use in current operations. Accordingly, we have classified all
investments as short-term, even though the stated maturity date may be one year
or more beyond the current balance sheet date. Available-for-sale securities are
stated at fair value based upon quoted market prices of the securities.
Unrealized gains and losses on such securities, when material, are reported as a
separate component of stockholders' equity. Realized gains and losses, net, on
available-for-sale securities are included in interest income. The cost of
securities sold is based on the specific identification method. Interest and
dividends on securities classified as available-for-sale are included in
interest income.

The following summarizes available-for-sale securities included in cash and cash
equivalents and short-term investments (in thousands):

December 31,
------------------
2001 2000
-------- --------

Money market funds. . . . . . . $ 3,823 $ 3,995
Commercial paper. . . . . . . . 27,306 41,126
U.S. corporate bonds. . . . . . 157,000 49,634
Government debt . . . . . . . . 13,016 5,997
Market auction securities . . . 22,100 10,399
-------- --------
Total. . . . . . . $223,245 $111,151
======== ========

As reported:
Cash equivalents. . . . . . $ 31,129 $ 18,151
Short-term investments. . . . 192,116 93,000
-------- --------
Total. . . . . . . $223,245 $111,151
======== ========

The following is a reconciliation of cash and cash equivalents:

December 31,
------------------
2001 2000
-------- --------

Cash equivalents. . . . . . $ 31,129 $ 18,151
Cash . . . . . . . . . . . 4,455 1,401
-------- --------
$ 35,584 $ 19,552
======== ========

Net unrealized gains were $236,000 and $365,000 for the periods ended December
31, 2001 and 2000, respectively. Gross unrealized gains and losses have not
been shown separately as they are immaterial. Realized gains amounted to
$84,000 in 2001 and none in 2000 and 1999.

Inventories

Inventories, consisting principally of growing grapevine plants at Vinifera, are
recorded at the lower of average cost or market. Average cost includes all
direct and indirect costs attributable to the growing of grapevine plants.
During March 2001, Exelixis reduced its ownership percentage in Vinifera to 19%
by selling 3.0 million shares of Vinifera common stock back to Vinifera. As a
result of this ownership reduction and subsequent deconsolidation, no Vinifera
inventory was included in the consolidated results as of December 31, 2001.

Inventories are summarized as follows (in thousands):

December 31,
-------------
2001 2000
----- ------

Operating supplies. . . . . $ - $ 283
Work-in-process . . . . . . - 2,411
Finished goods. . . . . . . - 918
----- ------
$ - $3,612
===== ======

Property and Equipment

Property and equipment are recorded at cost and depreciated using the
straight-line method over their estimated useful lives, generally two to seven
years. Leasehold improvements are amortized over the shorter of their estimated
useful life or the remaining term of the lease. Equipment held under capital
lease is stated at the lower of the cost of the related asset or the present
value of the minimum lease payments and is amortized on a straight-line basis
over estimated useful life of the related asset. Repair and maintenance costs
are charged to expense as incurred.

Intangible Assets

Intangible assets have been amortized using the straight-line method over the
following estimated useful lives:

Developed technology. . . . . . . . 5 years
Patents/core technology . . . . . . 15 years
Assembled workforce . . . . . . . . 3 years
Goodwill. . . . . . . . . . . . . . 15 years

Under Statement of Financial Accounting Standards ("SFAS") SFAS No. 142,
"Goodwill and Other Intangible Assets" ("SFAS 142"), the Company will apply the
new rules of accounting for goodwill and other intangible assets beginning in
the first quarter of 2002. Accordingly, goodwill and other intangible assets
deemed to have indefinite lives will no longer be amortized but will be subject
to annual impairment tests in accordance with SFAS 142.

Long-lived Assets

The Company accounts for its long-lived assets under SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" ("SFAS 121"). Consistent with SFAS 121, the Company identifies and records
impairment losses on long-lived assets used in operations when events and
circumstances indicate that the assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets. The Company's long-lived assets consist primarily of
machinery and equipment, leasehold improvements, goodwill and other acquired
intangible assets. During 2001 there was impairment of goodwill related to the
Genomica purchase as detailed in Note 2 of Notes to Consolidated Financial
Statements.

Income Taxes

The Company accounts for income taxes under the liability method. Under this
method, deferred tax assets and liabilities are determined on the basis of the
difference between the income tax bases of assets and liabilities and their
respective financial reporting amounts at enacted tax rates in effect for the
periods in which the differences are expected to reverse. A valuation allowance
is established when necessary to reduce deferred tax assets to the amounts
expected to be realized.

Fair Value of Financial Instruments

Carrying amounts of certain of the Company's financial instruments, including
cash and cash equivalents and short-term investments approximate fair value due
to their short maturities. Based on borrowing rates currently available to the
Company for loans and capital lease obligations with similar terms, the carrying
value of its debt obligations approximates fair value.

Revenue Recognition

License, research commitment and other non-refundable payments received in
connection with research collaboration agreements are deferred and recognized on
a straight-line basis over the relevant periods specified in the agreements,
generally the research term. Contract research revenues are recognized as
services are performed pursuant to the terms of the agreements. Any amounts
received in advance of performance are recorded as deferred revenue. Payments
are not refundable if research is not successful.

Milestone payments are non-refundable and recognized as revenue when earned over
the period of the arrangement, as evidenced by achievement of the specified
milestones and the absence of on-going performance obligation.

Revenues from chemistry collaborations are generally recognized upon the
delivery of accepted compounds.

Research and Development Expenses

Research and development costs are expensed as incurred and include costs
associated with research performed pursuant to collaborative agreements.
Research and development costs consist of direct and indirect internal costs
related to specific projects as well as fees paid to other entities that conduct
certain research activities on behalf of the Company. Research and development
expenses incurred in connection with collaborative agreements approximated
contract revenues for the years ended December 31, 2001, 2000 and 1999.
Information regarding our research collaborations is described in further detail
in Note 3 of Notes to Consolidated Financial Statements.

Net Loss per Share

Basic and diluted net loss per share are computed by dividing the net loss for
the period by the weighted average number of shares of common stock outstanding
during the period adjusted for shares which are subject to repurchase. The
calculation of diluted net loss per share excludes potential common stock if
their effect is antidilutive. Potential common stock consists of common stock
subject to repurchase, incremental common shares issuable upon the exercise of
stock options and warrants and shares issuable upon conversion of the preferred
stock and note payable.

The following table sets forth potential shares of common stock that are not
included in the computation of diluted net loss per share because to do so would
be antidilutive for the periods indicated:

Year Ended December 31,
---------------------------------
2001 2000 1999
--------- ---------- ----------

Preferred stock . . . . . . . . . . . . . - 6,599,324 22,607,614
Options to purchase common stock. . . . . 5,198,676 2,187,836 3,649,611
Common stock subject to repurchase. . . . 1,793,627 3,596,114 988,126
Conversion of note payable. . . . . . . . 783,504 588,942 1,718,750
Warrants. . . . . . . . . . . . . . . . . 485,218 524,397 612,724
--------- ---------- ----------
8,261,025 13,496,613 29,576,825
========= ========== ==========

Comprehensive Income

Comprehensive income generally represents all changes in stockholders' equity
(deficit) except those resulting from investments or contributions by
stockholders. The two components of other comprehensive income are unrealized
gains or losses on available-for-sale securities and cumulative translation
adjustments. For the year ended December 31, 2001, total comprehensive loss
amounted to $71.1 million compared to $74.9 million in 2000. For 1999, there
were no material differences between comprehensive loss and net loss. At
December 31, 2001, the total cumulative translation adjustment was $(100,000)
and unrealized gains in available-for-sale securities was $601,000.

Reclassification

Certain prior period amounts have been reclassified to conform to the current
period presentation.

Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, "Business Combinations" ("SFAS No. 141"), which establishes financial
accounting and reporting for business combinations and supersedes APB Opinion
No. 16, "Business Combinations," and FASB Statement No. 38, "Accounting for
Preacquisition Contingencies of Purchased Enterprises." SFAS No. 141 requires
that all business combinations be accounted for using one method, the purchase
method. The provisions of SFAS No. 141 apply to all business combinations
initiated after June 30, 2001. The adoption of SFAS No. 141 had no material
impact on financial reporting and related disclosures of the Company.

Also in July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets" ("SFAS No. 142") which establishes financial accounting and reporting
for acquired goodwill and other intangible assets and supersedes APB Opinion No.
17, "Intangible Assets." SFAS No. 142 addresses how intangible assets that are
acquired individually or with a group of other assets (but not those acquired in
a business combination) should be accounted for in financial statements upon
their acquisition and after they have been initially recognized in the financial
statements. The provisions of SFAS No. 142 are effective for fiscal years
beginning after December 15, 2001. The Company will adopt SFAS No. 142 during
the first quarter of fiscal 2002, and is in the process of evaluating the impact
of implementation on its financial position and results of operations.
Application of the non-amortization provisions of the Statement is expected to
result in a decrease to net loss of approximately $4.7 million in 2002 as
compared with the previous accounting requirements.

NOTE 2 ACQUISITIONS

Genomica Corporation

On November 19, 2001 Exelixis and Genomica announced a definitive agreement
pursuant to which Exelixis would acquire Genomica in a stock-for-stock
transaction valued at $110.0 million. The transaction was structured as an
offer for 100% of Genomica's outstanding common stock to be followed by a merger
of Genomica with a wholly-owned subsidiary of Exelixis. On December 28, 2001,
Exelixis accepted for payment 22,911,969 shares of Genomica common stock, or
93.94% of the total number of outstanding shares of common stock of Genomica.
On January 8, 2002, the merger of Genomica was completed. Upon effectiveness of
the merger, Genomica became a wholly-owned subsidiary of Exelixis. The
transaction, which was accounted for under the purchase method of accounting,
was effected through the exchange of 0.28309 of a share of Exelixis common stock
for each outstanding share of Genomica common stock. A total of approximately
6.9 million shares of Exelixis common stock were issued for all of the
outstanding shares of Genomica common stock.

The total consideration for the acquisition was approximately $110.0 million,
which consisted of Exelixis common stock valued at $108.9 million and estimated
Exelixis transaction costs of $1.1 million. As of December 31, 2001, only 93.94%
of the total consideration had been issued by Exelixis, accordingly, the Company
recorded the value of the remaining 6.06%, or $6.9 million as a long term
liability.

The purchase price for Genomica was allocated to the assets acquired and the
liabilities assumed based on their estimated fair values at the date of
acquisition, as determined by management based on an independent valuation. As
a result of this transaction, Exelixis recorded net tangible assets of $106.2
million, developed technology of $0.4 million, which will be amortized over two
years and goodwill of $3.4 million. At the same time, Exelixis recorded goodwill
impairment charge of $2.7 million, which was expensed in the current year to
operations. The impairment of goodwill was calculated in accordance with SFAS
121 by estimating the present value of future cash flows for the ongoing
Genomica licensing business using a risk adjusted discount rate. The goodwill
impairment charge represents excess purchase price that Exelixis views as
economically equivalent to financing costs for the acquired cash and
investments.

Under SFAS 142, the Company will apply the new rules of accounting for goodwill
and other intangible assets beginning in the first quarter of 2002.
Accordingly, goodwill and other intangible assets deemed to have indefinite
lives will no longer be amortized but will be subject to annual impairment tests
in accordance with SFAS 142.

The following table summarizes the fair values of the assets acquired and
liabilities assumed at the date of the acquisition:

December 28,
2001
--------------
(in thousands)

Cash, investments and interest receivable. . . . $111,302
Other tangible assets (liabilities), net . . . . (5,037)
Goodwill.. . . . . . . . . . . . . . . . . . . . 3,382
Developed technologies.. . . . . . . . . . . . . 400
--------------
Net assets acquired. . . . . . . . . . . . . . $110,047
==============

Prior to the December 28th acquisition date, Exelixis began formulating an exit
plan for Genomica to improve the operating efficiency of the combined company.
This plan was based upon a restructuring plan Genomica implemented in October
2001 and called for the reduction of substantially all of Genomica's workforce
and the abandonment of leased facilities in Boulder, Colorado and Sacramento,
California. These activities are expected to be completed during the first half
of 2002. Certain key terminated individuals were retained as consultants by
Exelixis to assist in further licensing and development of Genomica's technology
to third parties. The estimated costs are included as part of the liabilities
assumed in the acquisition and are detailed as follows (in thousands):

December 28,
2001
--------------

Severance and benefits. . . . . . . . . . . . . $ 1,216
Lease abandonment . . . . . . . . . . . . . . . 1,703
--------------
Total exit costs. . . . . . . . . . . . . . . $ 2,919
==============

Artemis Pharmaceuticals, GmbH

In May 2001, the Company acquired a majority of the outstanding capital stock of
Artemis Pharmaceuticals GmbH, a privately held genetics and functional genomics
company organized under the laws of Germany. The transaction, which was
accounted for under the purchase method of accounting, was effected through the
exchange of shares of Exelixis common stock for Deutschmark 1.00 of nominal
value of Artemis capital stock, using an exchange ratio of 4.064 to one.
Approximately 1.6 million shares of Exelixis common stock were issued in
exchange for 78% of the outstanding capital stock of Artemis held by Artemis
stockholders. In addition, Exelixis received a call option (the "Call Option")
from, and issued a put option (the "Put Option") to, certain stockholders of
Artemis (the "Option Holders") for the issuance of approximately 480,000 shares
of Exelixis common stock in exchange for the remaining 22% of the outstanding
capital stock of Artemis held by the Option Holders. Exelixis may exercise the
Call Option at any time from May 14, 2001 through January 31, 2002, and the
Option Holders may exercise their rights under the Put Option at any time from
April 1, 2002 through May 15, 2002. Exelixis exercised the Call Option for
131,674 and 329,591 shares in December 2001 and January 2002, respectively,
which resulted in an increase to goodwill of approximately $1.9 and $4.2
million, respectively. In addition, Exelixis also issued fully vested rights to
purchase approximately 187,000 additional shares of Exelixis common stock to
Artemis employees in exchange for such employees' vested options formerly
representing the right to purchase shares of Artemis capital pursuant to the
Artemis employee option program.

As of December 31, 2001, the total consideration for the acquisition was
approximately $24.2 million, which consisted of Exelixis common stock and
options valued at $23.3 million and estimated Exelixis transaction costs of
$900,000. Exelixis' transaction costs include financial advisory, legal,
accounting and other fees.

The purchase price, which for financial accounting purposes was valued at $24.2
million, was allocated to the assets acquired and the liabilities assumed based
on their estimated fair values at the date of acquisition, as determined by
management based upon an independent valuation. As a result of this
transaction, Exelixis recorded expense associated with the purchase of
in-process research and development of $6.7 million, net tangible assets of $2.8
million and intangible assets (including goodwill) of $14.7 million, the
majority of which was being amortized over 15 years until December 31, 2001.
Under SFAS 142, the Company will apply the new rules of accounting for goodwill
and other intangible assets beginning in the first quarter of 2002.
Accordingly, goodwill and other intangible assets deemed to have indefinite
lives will no longer be amortized but will be subject to annual impairment tests
in accordance with SFAS 142.

The valuation of the purchased in-process research and development of $6.7
million was based upon the results of an independent valuation using the income
approach for each of the three significant in-process projects. The in-process
projects relate primarily to the development of technologies that use vertebrate
genetic model organisms, zebrafish and mice, to identify and functionally
validate novel genes in vivo. These genes can be used as novel screening
targets or as the basis for secreted proteins in clinically and commercially
relevant diseases. The in-process projects are expected to be completed over
the next 12 months. The income approach estimates the value of each acquired
in-process project based on its expected future cash flows. The valuation
analysis considered the contribution of the core technology as well as the
percent complete of each in-process research and development project. The
expected present value of the cash flows associated with the in-process research
and development projects was computed using a risk adjusted rate of return of
30%, which is considered commensurate with the overall risk and percent complete
of the in-process projects. The purchased in-process research and development
was not considered to have reached technological feasibility, and it has no
alternative future use, accordingly, it was recorded as a component of
operating expense.

The revenues, expenses, cash flows and other assumptions underlying the
estimated fair value of the acquired in-process research and development involve
significant risks and uncertainties. The risks and uncertainties associated with
completing the acquired in-process projects include the ability to reach future
research milestones since the technologies being developed are unproven, the
ability to retain key personal, the ability to obtain licenses to key technology
and the ability to avoid infringing on patents and propriety rights of third
parties.

Agritope

In December 2000, Exelixis completed its acquisition of Agritope, Inc. As a
result of the acquisition, Agritope became a wholly-owned subsidiary of
Exelixis, and was subsequently renamed Exelixis Plant Sciences, Inc. The
transaction, which was accounted for under the purchase method of accounting,
was effected through the exchange of 0.35 of a share of Exelixis common stock
for each outstanding share of Agritope capital stock. Approximately 1.7 million
shares of Exelixis common stock were issued in connection with the transaction.
In addition, unexpired and unexercised options and warrants to purchase shares
of Agritope capital stock were assumed by Exelixis pursuant to the transaction
and converted into fully vested options and warrants to purchase approximately
880,000 shares of Exelixis common stock.

The total consideration for the acquisition was approximately $93.5 million,
which consists of Exelixis common stock, options and warrants valued at $92.2
million and estimated Exelixis transaction costs of $1.3 million. Exelixis
transaction costs include financial advisory, legal, accounting and other fees.

The purchase price for Agritope, which for financial accounting purposes was
valued at $93.5 million, was allocated to the assets acquired and the
liabilities assumed based on their estimated fair values at the date of
acquisition, as determined by an independent valuation. As a result of this
transaction, Exelixis recorded expense associated with the purchase of
in-process research and development of $38.1 million, net tangible liabilities
of $3.6 million, and intangible assets (including goodwill) of $58.9 million,
the majority of which was being amortized over 15 years until December 31, 2001.
Under SFAS 142, the Company will apply the new rules of accounting for goodwill
and other intangible assets beginning in the first quarter of 2002.
Accordingly, goodwill and other intangible assets deemed to have indefinite
lives will no longer be amortized but will be subject to annual impairment tests
in accordance with SFAS 142.

The valuation of the purchased in-process research and development of $38.1
million was based upon the results of an independent valuation using the income
approach for each of the ten projects in-process. The in-process projects relate
primarily to the development of disease and insect resistant fruits and
vegetables and are expected to be completed over approximately the next three to
six years. The income approach estimates the value of each acquired project
in-process based on its expected future cash flows. The valuation analysis
considered the contribution of the core technology as well as the percent
complete of each in-process research and development project. The expected
present value of the cash flows associated with the in-process research and
development projects was computed using a risk adjusted rate of return of 35%,
which is considered commensurate with the overall risk and percent complete of
the in-process projects. The purchased technology was not considered to have
reached technological feasibility, and it has no alternative future use,
accordingly, it was recorded as a component operating expense.

The revenues, expenses, cash flows and other assumptions underlying the
estimated fair value of the acquired in-process research and development involve
significant risks and uncertainties. The risks and uncertainties associated with
completing the acquired in-process projects include obtaining the necessary
regulatory approvals in a timely manner and being able to successfully and
profitably produce, distribute and sell products.

The Company acquired Vinifera in connection with the purchase of Agritope, Inc.
(parent company of Vinifera) in 2000. Vinifera was organized as a majority-owned
subsidiary and was engaged in the grape vine propagation business. Because this
business did not fit with the strategic objectives of Exelixis, at the date of
the acquisition of Agritope, the management of Exelixis committed to a plan to
sell the Vinifera operations. On March 31, 2001, the Company reduced its
ownership interest in Vinifera from 57% to 19% by selling 3.0 million shares of
Vinifera common stock back to Vinifera in consideration for $2.1 million in
interest bearing promissory notes. As a result of the sale of Vinifera common
stock back to Vinifera, Exelixis deconsolidated Vinifera, excluded their share
of Vinifera's operating losses for the first quarter of 2001 of $275,000, and
recorded the following amounts as an adjustment to goodwill recorded in
connection with the acquisition of Agritope: a write-down of the value of
acquired developed technology attributable to Vinifera of $435,000, a gain on
sale of Vinifera shares of $590,000 and a promissory note reserve of $1,700,000.
The net adjustment was an increase to goodwill in the amount of $675,000.
Beginning April 1, 2001, the Company accounted for its remaining investment in
Vinifera using the cost method.

Due to risks associated with collection, as of December 31, 2001, the Company
has reserved for 100% of these promissory notes. Due to a significant decline in
the operating performance of Vinifera, in December 2001, the Company wrote down
its remaining cost-basis investment in Vinifera to zero. Exelixis was advised
in March 2002 that Vinifera was in the process of being liquidated.

MetaXen

In July 1999, the Company acquired substantially all the assets of MetaXen. In
addition to paying cash consideration of $870,000, the Company assumed a note
payable relating to certain acquired assets with a principal balance due of $1.1
million (see Note 6). The Company also assumed responsibility for a facility
lease relating to the office and laboratory space occupied by MetaXen.

This transaction was recorded using the purchase method of accounting. The fair
value of the assets purchased, and debt assumed, was determined by management to
equal their respective historical net book values on the transaction date, as
follows (in thousands):

Laboratory and computer equipment . . $ 1,645
Leasehold improvements . . . . . . . 175
Other tangible assets . . . . . . . . 155
Note payable. . . . . . . . . . . . . (1,105)
--------
$ 870
========

Pro Forma Results

The Company's audited historical statements of operations include the results of
Genomica, Artemis and Agritope subsequent to the acquisition dates of December
28, 2001, May 14, 2001 and December 8, 2000, respectively. The following
unaudited pro forma financial information presents the consolidated results of
the Company as if the acquisition of Genomica, Artemis and Agritope had occurred
at the beginning of 2000. The $4.3 million restructuring charge that Genomica
recorded in October 2001 is included in the following pro-forma information
since this charge was non-recurring and not related to the acquisition. All
other non-recurring charges relating to the acquisitions, such as acquired
in-process research and development charge and impairment of goodwill charge,
are not reflected in the following pro forma financial information. This pro
forma information is not intended to be indicative of future operating results
(in thousands, except per share data).

Year Ended December 31,
-----------------------

2001 2000
----------- -----------

Total revenues . . . . . . . . . . . . . . $ 42,858 $ 31,207
Net loss . . . . . . . . . . . . . . . . . (93,734) (97,355)
Net loss per share, basic and diluted. . . (1.74) (2.04)

NOTE 3 RESEARCH AND COLLABORATION AGREEMENTS

Bayer

In May 1998, the Company entered into a six-year research collaboration
agreement with Bayer AG (including its affiliates, "Bayer") to identify novel
screening targets for the development of new pesticides for use in crop
protection. The Company provided research services directed towards identifying
and investigating molecular targets in insects and nematodes that may be useful
in developing and commercializing pesticide products. The Company received a
$1.2 million license fee upon execution of the agreement that was deferred and
will be recognized as revenue over the term of the agreement.

In December 1999, the Company significantly expanded its relationship with Bayer
by forming a joint venture in the form of a new limited liability company,
Genoptera LLC ("Genoptera"). Under the terms of the Genoptera operating
agreement, Bayer provides 100% of the capital necessary to fund the operations
of Genoptera and has the ability to control the entity with a 60% ownership
interest. The Company owns the other 40% interest in Genoptera without making
any capital contribution and will report its investment in Genoptera using the
equity method of accounting. Bayer's initial capital contributions to Genoptera
were $10.0 million in January 2000 and another $10.0 million in January 2001.
Bayer is required to also contribute cash to Genoptera in amounts necessary to
fund its ongoing operating expenses. Genoptera has incurred losses since
inception. Since the carrying value of this investment is zero and there is no
obligation to fund future losses, Exelixis has not recorded equity method losses
to date for Genoptera.

In January 2000, the Company, Bayer and Genoptera entered into an exclusive
eight-year research collaboration agreement, which superceded the 1998 agreement
discussed above. The Company is required to provide Genoptera with expanded
research services focused on developing insecticides and nematicides for crop
protection. Under the terms of the collaboration agreement, Genoptera paid the
Company a $10.0 million license fee and a $10.0 million research commitment fee.
One-half of these fees were received in January 2000, and the remaining amounts
were received in January 2001. Additionally, Genoptera is required to also pay
the Company approximately $10.0 million in annual research funding. The Company
can earn additional payments under the collaboration agreement upon the
achievement of certain milestones. The Company can also earn royalties on the
future sale by Bayer of pesticide products incorporating compounds developed
against targets and assays under the agreement. The agreement also provides
Bayer an exclusive royalty-free option to use certain technology developed under
the agreement in the development of fungicides and herbicides. To the extent
permitted under the collaboration agreement, if the Company were to develop and
sell certain human health or agrochemical products that incorporate compounds
developed under the agreement, it would be obligated to pay royalties to
Genoptera. No such activities are expected for the foreseeable future.

Revenues recognized under these agreements approximated $13.1 million, $13.1
million and $4.3 million during the years ended December 31, 2001, 2000 and
1999, respectively. This represents 32%, 53%, and 41% of total consolidated
revenue for the years ended December 31, 2001, 2000 and 1999, respectively.

Pharmacia

In February 1999, the Company entered into a research collaboration agreement
with Pharmacia Corporation ("Pharmacia") focused on the identification of novel
targets that may be useful in the development of pharmaceutical products in the
areas of Alzheimer's disease and metabolic syndrome. Pharmacia agreed to pay the
Company a $5.0 million non-refundable license fee, which is being recognized as
revenue over the term of the agreement. Under the terms of the agreement, as
expanded and amended in October 1999, the Company is entitled to also receive
future research funding during the first three years of the agreement. The
Company can also earn additional amounts under the agreement upon the
achievement of certain milestones. The Company can also earn royalties on the
future sales by Pharmacia of human therapeutic products incorporating compounds
developed against targets identified under the agreement. Revenues recognized
under this agreement approximated $12.7 million, $8.9 million and $5.6 million
during the years ended December 31, 2001, 2000 and 1999, respectively. This
represents 31%, 36%, and 53% of total consolidated revenue for the years ended
December 31, 2001, 2000 and 1999, respectively.

In connection with entering into this agreement, Pharmacia also purchased
1,875,000 shares of Series D preferred stock at $3.00 per share, resulting in
net cash proceeds to the Company of $7.5 million. Further, Pharmacia loaned the
Company $7.5 million in exchange for a non-interest bearing convertible
promissory note (see Note 7). The convertible promissory note was converted
into an aggregate of 480,769 shares of common stock of the Company in July 2000.

In July 2001, the Company announced the reacquisition, effective February 2002,
of future rights to the research programs. Pharmacia retained rights to targets
under the existing agreement selected prior to the reacquisition date, subject
to the payment of milestones for certain of those targets selected and royalties
for future development of products against or using those targets, but will have
no other obligations to make payments to the Company, including approximately
$9.0 million in annual funding that would otherwise be payable for an additional
two years if the Company had not elected to reacquire rights to the research.
As a result of this transaction, revenue recognition of upfront license fees and
milestone payments has accelerated over the remaining term of the agreement.
The result was an increase of approximately $2.0 million in incremental revenue
for the year ended December 31, 2001.

Bristol-Myers Squibb

In September 1999, the Company entered into a three-year research and technology
transfer agreement with Bristol-Myers Squibb Company ("Bristol-Myers Squibb" or
"BMS") to identify the mechanisms of action of compounds delivered to the
Company by BMS. BMS agreed to pay the Company a $250,000 technology access fee,
which is being recognized as revenue over the term of the agreement. Under the
terms of the agreement, the Company is entitled to receive research funding
ranging from $1.3 million in the first year to as much as $2.5 million in later
years. The Company can also earn additional amounts under the agreement upon the
achievement of certain milestones as well as earn royalties on the future sale
by Bristol-Myers Squibb of human products incorporating compounds developed
under the agreement. The agreement also includes technology transfer and
licensing terms, which call for BMS and the Company to license and share certain
core technologies in genomics and lead optimization. Revenues recognized under
this agreement approximated $2.5 million, $1.8 million and $372,000 during the
years ended December 31, 2001, 2000 and 1999, respectively. This represents 6%,
7%, and 4% of total consolidated revenue for the years ended December 31, 2001,
2000 and 1999, respectively. Unless renewed, this agreement is scheduled to
expire in September 2002.

In July 2001, the Company and Bristol-Myers Squibb entered into a collaboration
involving three agreements: (a) a Stock Purchase Agreement; (b) a Cancer
Collaboration Agreement; and (c) a License Agreement. Under the terms of the
collaboration, BMS (i) purchased 600,600 shares of Exelixis common stock in a
private placement at a purchase price of $33.30 per share, for cash proceeds to
Exelixis of approximately $20.0 million; (ii) agreed to pay Exelixis a $5.0
million upfront license fee and provide Exelixis with $3.0 million per year in
research funding for a minimum of three years; and (iii) granted to Exelixis a
worldwide, fully-paid, exclusive license to an analogue to Rebeccamycin
developed by BMS, which is currently in Phase I and Phase II clinical studies
for cancer. Due to risk and uncertainties with Rebeccamycin, and because the
analogue had not reached technological feasibility and has no alternative use,
the analogue was assigned no value for financial reporting purposes. Exelixis
has agreed to provide BMS with exclusive rights to certain potential small
molecule compound drug targets in cancer identified during the term of the
research collaboration. The premium in excess of fair market value of $10.0
million paid for the stock purchased by BMS is being accounted for similar to an
upfront license fee and is being recognized ratably over the life of the
contract. Revenue recognized under this agreement approximated $3.7 million
during the year ended December 31, 2001. This represents 9% of total
consolidated revenue for the year ended December 31, 2001.

Dow AgroSciences

In July 2000, the Company entered into a three-year research collaboration with
Dow AgroSciences LLC ("Dow Agrosciences") to identify the mechanism of action of
herbicides and fungicides delivered to it under this agreement. The identity
and function of these compounds are not known to the Company prior to their
delivery.

Under this agreement, the Company receives access to a collection of proprietary
compounds from Dow AgroSciences that may be useful in its human therapeutic drug
discovery programs.

The Company is required to identify and validate targets and format assays to be
used by Dow AgroSciences to develop new classes of fungicides and herbicides.
Dow AgroSciences will pay the Company research support fees, milestones and
royalties based on achievements in the research and commercialization of any
resultant new products. Revenues recognized under this agreement approximated
$1.3 million and $588,000 during the years ended December 31, 2001 and 2000,
respectively.

Protein Design Labs

On May 22, 2001, the Company and Protein Design Labs, Inc. ("PDL") entered into
a collaboration to discover and develop humanized antibodies for the diagnosis,
prevention and treatment of cancer. The collaboration will utilize Exelixis'
model organism genetics technology for the identification of new cancer drug
targets and PDL's antibody and clinical development expertise to create and
develop new antibody drug candidates. PDL is required to provide Exelixis with
$4.0 million in annual research funding for two or more years and has purchased
a $30.0 million convertible note. The note bears interest at 5.75%, and the
interest thereon is payable annually. The note is convertible at PDL's option
any time after the first anniversary of the note. The note is convertible into
Exelixis common stock at a conversion price per share equal to the lower of (i)
$28.175 or (ii) 110% of the Fair Market Value (as defined in the note) of a
share of Exelixis common stock at the time of conversion. Revenue recognized
under this agreement approximated $2.3 million during the year ended December
31, 2001. This represents 6% of total consolidated revenue for the year ended
December 31, 2001.

Agrinomics

In July 1999, Agritope and Aventis CropScience S.A. ("Aventis") formed
Agrinomics LLC to conduct a research, development and commercialization program
in the field of agricultural functional genomics. As a result of the Company's
acquisition of Agritope, the Company owns a 50% interest in Agrinomics, while
Aventis owns the remaining 50% interest. Aventis has agreed to make capital
contributions to Agrinomics in cash totaling $20.0 million over a five-year
period, of which zero, $4.0 million and $5.0 million were contributed in 2001,
2000 and 1999, respectively. Agritope contributed certain technology and a
collection of seeds generated using such technology. In connection with the
Company's acquisition of Agritope, no portion of the purchase price was assigned
to Agrinomics. Although the Company is required to account for its investment in
Agrinomics under the equity method, the Company does not expect to include in
its consolidated financial statements its proportionate share of the losses of
Agrinomics until such time, if ever, that the Company makes a capital
contribution to Agrinomics. There is no requirement for the Company to make
capital contributions to Agrinomics. In 2001 and 2000, respectively, the Company
recognized revenues of approximately $3.8 million and $236,000 for work
performed for Agrinomics. This represents 10% and 1% of total consolidated
revenue for the years ended December 31, 2001 and 2000, respectively.

Compound Collaborations

In 2001, the Company entered into collaboration agreements with Cytokinetics,
Inc., Elan Pharmaceuticals, Inc., Schering-Plough Research Institute, Inc. and
Scios Inc., respectively, to jointly design custom high-throughput screening
compound libraries that Exelixis will synthesize and qualify. Each company is
required to pay Exelixis a per-compound fee and has paid an upfront technology
access fee that is creditable towards the future purchase of compounds. The
upfront fees have been deferred. Revenues under these collaboration agreements
will be generally recognized upon delivery of the accepted compounds. Each
party retains the rights to use the compounds in its own unique drug discovery
programs and in its collaborative efforts with third parties. The Company
recognized total revenue of $200,000 under these agreements for the year ended
December 31, 2001.

NOTE 4 RELATED PARTY RECEIVEABLES

The Company had outstanding loans aggregating $937,000 and $494,000 to certain
officers and employees at December 31, 2001 and 2000, respectively. The notes
are general recourse or collateralized by certain real property assets, bear
interest at rates ranging from 4.82% to 9.50% and have maturities through 2005.
The principal plus accrued interest will be forgiven at various rates over three
to four years from the employees' date of employment with Exelixis. If an
employee leaves Exelixis, all unpaid and unforgiven principal and interest will
be due and payable within 60 days.

As of December 31, 2001, the Company had outstanding loans aggregating $2.2
million to its stockholders at December 2001. The loans were issued to enable
certain employees to purchase stock pursuant to their employee stock options.
The loans bear interest at rates ranging from 5.25% to 6.50% and mature at
various times through February 2004.

NOTE 5 PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):

December 31,
--------------------
2001 2000
--------- ---------

Laboratory equipment . . . . . . . . . . . . . . . $ 24,884 $ 12,757
Computer equipment and software. . . . . . . . . . 13,163 7,112
Furniture and fixtures . . . . . . . . . . . . . . 4,570 3,876
Buildings. . . . . . . . . . . . . . . . . . . . . - 2,487
Grapevine propragation blocks. . . . . . . . . . . - 1,802
Leasehold improvements . . . . . . . . . . . . . . 15,410 7,850
Construction-in-progress . . . . . . . . . . . . . 423 298
--------- ---------
58,450 36,182
Less accumulated depreciation and amortization . . (21,950) (12,702)
--------- ---------
$ 36,500 $ 23,480
========= =========

Depreciation and amortization expense for the years ended December 31, 2001,
2000 and 1999 included amortization of $4.6 million, $1.1 million and $652,000,
respectively, related to equipment under capital leases. Accumulated
amortization for equipment under capital leases was $7.9 million and $3.3
million at December 31, 2001 and 2000, respectively. The equipment under the
capital leases collateralizes the related lease obligations.

NOTE 6 GOODWILL AND OTHER INTANGIBLE ASSETS

In connection with the acquisitions of Genomica in December 2001, Artemis in May
2001 and Agritope in December 2000, the Company recorded goodwill and other
intangible assets (refer to Note 2). As of December 31, 2001 and 2000, goodwill
and other intangible assets consisted of the following (in thousands):

December 31,
------------------
2001 2000
-------- --------

Goodwill. . . . . . . . . . . . . . . . . $66,630 $53,823
Accumulated amortization. . . . . . . . . (4,271) (219)
-------- --------
Goodwill, net . . . . . . . . . . . . $62,359 $53,604
======== ========

Acquired intangible assets. . . . . . . . $ 8,179 $ 5,111
Accumulated amortization . . . . . . . . (1,053) (41)
-------- --------
Acquired intangibles, net . . . . . . $ 7,126 $ 5,070
======== ========

The Company will apply the new rules of accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Under the new rules,
goodwill and other intangible assets deemed to have indefinite lives will no
longer be amortized but will be subject to annual impairment tests in accordance
with SFAS 142. Application of the non-amortization provisions of the Statement
is expected to result in a decrease to net loss of approximately $4.7 million in
2002, as compared to previous accounting requirements. Also all workforce
related intangibles will be reclassified to goodwill.

NOTE 7 DEBT

In July 1998, the Company entered into a $5.0 million equipment and tenant
improvements lending agreement of which the drawdown period expired in January
2000. As of December 31, 2001 and 2000, there was approximately $1.5 million and
$2.8 million, respectively outstanding under the lending agreement. Borrowings
under the agreement bear interest at 7.0% per year and are collateralized by the
financed equipment.

In connection with the acquisition of MetaXen in September 1999, the Company
assumed a loan agreement which provided for the financing of equipment
purchases. Borrowings under the agreement are collateralized by the assets
financed and are subject to repayment over thirty-six to forty-eight months,
depending on the type of asset financed. Borrowings under the agreement bear
interest at the U.S. Treasury note rate plus a number of basis points determined
by the type of asset financed (6.80% to 7.44% at December 31, 2001 and 2000). As
of December 31, 2001 and 2000, there was approximately $143,000 and $490,000,
respectively, outstanding under this loan agreement.

In connection with the acquisition of Artemis in May 2001, the Company assumed a
loan agreement with the Federal Republic of Germany. The $226,000 loan requires
the entire principal to be paid in one payment in January of 2004. The loan has
an interest rate of 1% per annum to be paid quarterly.

In May 2001, the Company issued a $30.0 million convertible promissory note to
PDL in connection with a collaboration agreement (see Note 3). The note bears
interest at 5.75%, payable annually. The note, which matures in July 2006, is
convertible at PDL's option any time after the first anniversary of the note.
The note is convertible into Exelixis common stock at a conversion price per
share equal to the lower of (i) $28.175 or (ii) 110% of the Fair Market Value
(as defined in the note) of a share of Exelixis common stock at the time of
conversion.

In February 1999, the Company issued a $7.5 million convertible promissory note
to Pharmacia in connection with a collaboration agreement (see Note 3). The
note was to convert into shares of the Company's common stock at a price per
share equal to 120% of the price of common stock sold in the initial public
offering, the time of such conversion to be determined by Pharmacia. In July
2000, Pharmacia converted the note into 480,769 shares of common stock at a
conversion price of $15.60 per share.

Future principal payments of notes payable at December 31, 2001 are as follows
(in thousands):

Year Ending December 31,
- -------------------------------
2002. . . . . . . . . . . . . . $ 1,200
2003. . . . . . . . . . . . . . 426
2004. . . . . . . . . . . . . . 226
2005. . . . . . . . . . . . . . -
2006. . . . . . . . . . . . . . 30,000
-------
31,852
Less current portion. . . . . . 1,200
-------
$30,652
=======

NOTE 8 PREFERRED STOCK

Prior to the Company's initial public offering in April 2000, the Company had
authorized 35,000,000 shares of mandatorily redeemable convertible preferred
stock ("convertible preferred stock"). Each share of Series A, B, C and D
convertible preferred stock was convertible at any time at the option of the
holder into shares of common stock based upon a one to 0.75 conversion ratio.
All Series A, B, C and D convertible preferred stock automatically converted to
common stock upon the closing of the Company's initial public offering of common
stock on April 14, 2000.

In connection with the initial public offering, the Company amended and restated
its certificate of incorporation to authorize 10,000,000 shares of preferred
stock. The Company's Board of Directors has the authority to determine the
rights, preferences, privileges and restrictions of the preferred stock,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of any series. As of December 31,
2001 and 2000 there was no preferred stock outstanding.

NOTE 9 COMMON STOCK AND WARRANTS

Stock Repurchase Agreements

In January 1995, the Company sold to certain founders, members of its Scientific
Advisory Board (the "SAB") and a consultant an aggregate 1,327,500 shares of
common stock at a price of $0.001 per share. In June 1995, 1,200,000 of these
shares held by three founders of the Company were converted into 526,819 shares
of Class B common stock. Simultaneously, these founders entered into Restated
Stock Purchase and Repurchase Agreements (the "Restated Agreements"). In April
1999, 526,819 shares of Class B common stock were converted into 1,200,000
shares of common stock pursuant to the terms of the Restated Agreements.

Under the terms of the Company's stock option plans, options are exercisable
when granted and, if exercised, the related shares are subject to repurchase
upon termination of employment. Repurchase rights lapse over the vesting
periods, which are generally four years. Should the employment of the holders of
common stock subject to repurchase terminate prior to full vesting of the
outstanding shares, the Company may repurchase all unvested shares at a price
per share equal to the original exercise price. At December 31, 2001 and 2000,
1,253,226 and 2,656,575 shares, respectively, were subject to such repurchase
terms.

Warrants

Historically, the Company has granted warrants to purchase shares of capital
stock to certain preferred stockholders and third parties in connection with
financing and operating lease arrangements. In addition, in connection with the
Agritope acquisition (refer to Note 2), the Company assumed warrants to purchase
239,167 shares of Company common stock. All of the Agritope warrants expired
unexercised on December 31, 2001.

At December 31, 2001, the following warrants to purchase common stock were
outstanding and exercisable:

Number Exercise Price Date Expiration
of Shares per Share Issued Date
- ---------- ------------------ ----------------- -------------
71,428 $ 1.13 January 24, 1996 April 14, 2005
106,875 $ 4.00 May 1, 1999 April 14, 2005
78,750 $ 13.00 April 1, 2000 April 14, 2005
- ---------
257,053
=========

The Company determines the fair value of warrants issued using the Black-Scholes
option pricing model. Prior to 1999, the fair value of warrants issued was not
material, accordingly no value has been ascribed to them for financial reporting
purposes.

The Company determined the fair value of the warrants issued during 1999,
related to a building lease, using the Black-Scholes option pricing model with
the following assumptions: expected life of five years; a weighted average
risk-free rate of 6.1%; expected dividend yield of zero; volatility of 70% and a
deemed value of the common stock of $5.71 per share. The fair value of the
warrants of $391,000 has been capitalized and is being amortized as rent expense
over the term of the lease.

The Company determined the fair value of the warrants issued during 2000,
related to a building lease using the Black-Scholes option pricing model using
the following assumptions: expected life of five years; a weighted average
risk-free rate of 6.38%; expected dividend yield of zero; volatility of 70%; and
a deemed value of the common stock of $11.00 per share. The fair value of the
warrants of $518,000 has been capitalized and is being amortized as rent expense
over the term of the lease.

Reserved Shares

At December 31, 2001, the Company has approximately 14.4 million shares of
common stock reserved for future issuance related to stock plans, convertible
notes and exercise of outstanding warrants.

NOTE 10 EMPLOYEE BENEFIT PLANS

Stock Based Benefit Plans

Stock Option Plans. In January 1995, the Company adopted the 1994 Employee,
Director and Consultant Stock Option Plan ("1994 Plan"). The 1994 Plan provides
for the issuance of incentive stock options, non-qualified stock options and
stock purchase rights to key employees, directors, consultants and members of
the SAB. In September 1997, the Company adopted the 1997 Equity Incentive Plan
("1997 Plan"). The 1997 Plan amends and supercedes the 1994 Plan. In January
2000, the Company adopted the 2000 Equity Incentive Plan ("2000 Plan") to
replace the 1997 Plan. A total of 3,000,000 shares of Exelixis common stock were
initially authorized for issuance under the 2000 Plan. On the last day of each
year for ten years, starting in 2000, the share reserve will automatically be
increased by a number of shares equal to the greater of: 5% of the Company's
outstanding shares on a fully-diluted basis; or that number of shares subject to
stock awards granted under the 2000 Plan during the prior 12-month period.

The Board of Directors or a designated Committee of the Board is responsible for
administration of the Company's employee stock option plans and determines the
term of each option, exercise price and the vesting terms. Incentive stock
options may be granted at an exercise price per share at least equal to the
estimated fair value per underlying common share on the date of grant (not less
than 110% of the estimated fair value in the case of holders of more than 10% of
the Company's voting stock). Options granted under the 1997 and 2000 Plans are
exercisable when granted and generally expire ten years from the date of grant
(five years for incentive stock options granted to holders of more than 10% of
the Company's voting stock).

In January 2000, the Company adopted the 2000 Non-Employees Directors' Stock
Option Plan ("Director Plan"). The Director Plan provides for the automatic
grant of options to purchase shares of common stock to non-employee directors. A
total of 500,000 shares of the Company's common stock were initially authorized
for issuance under the Director Plan. On the last day of each year for ten
years, starting in 2000, the share reserve will automatically be increased by a
number of shares equal to the greater of: 0.75% of the Company's outstanding
shares on a fully-diluted basis; or that number of shares subject to options
granted under the Director Plan during the prior 12-month period. Each person
who is a non-employee director will automatically receive an initial grant for
25,000 shares. The initial grant is exercisable immediately but will vest at the
rate of 25% of the shares on the first anniversary of the grant date and monthly
thereafter over the next three years. In addition, on the day after each of our
annual meetings of the stockholders, each non-employee director will
automatically receive an annual grant for 5,000 shares. This annual grant is
exercisable immediately but will vest monthly over the following year.

In connection with the acquisition of Agritope in December 2000, the Company
assumed all the options granted and outstanding to consultants and employees
under the Agritope, Inc. 1997 Stock Award Plan. Each outstanding Agritope stock
option was converted into the right to purchase the number of shares of the
Company's common stock as determined using the applicable exchange ratio of 0.35
(refer to Note 2). All other terms and conditions of the Agritope stock options
did not change and will operate in accordance with their terms.

During April 2001, Exelixis granted approximately 545,000 supplemental stock
options ("Supplemental Options") under the 2000 Equity Incentive Plan to certain
employees (excluding officers and directors) who had stock options with exercise
prices greater than $16.00 per share under the 2000 Equity Incentive Plan. The
number of Supplemental Options granted was equal to 50% of the corresponding
original grant held by each employee. The Supplemental Options have an exercise
price of $16.00, vest monthly over a two-year period beginning April 1, 2001,
and have a 27-month term. The vesting on the corresponding original stock
options was halted and will resume in April 2003 following the completion of
vesting of the Supplemental Options. This new grant constitutes a synthetic
repricing as defined in FASB Interpretation Number 44, "Accounting for Certain
Transactions Involving Stock Compensation" and will result in certain options
being reported using the variable plan method of accounting for stock
compensation expense until they are exercised, forfeited or expire. For the year
ended December 31, 2001, the cumulative compensation expense recorded for the
Supplemental Options was approximately $246,000.

A summary of all option activity is presented below:

Weighted
Average
Exercise
Shares Price
----------- ------

Options outstanding at December 31, 1998 . . . . . . . . . 2,801,177 $ 0.25
Granted . . . . . . . . . . . . . . . . . . . . . . . . . 2,892,202 0.32
Exercised . . . . . . . . . . . . . . . . . . . . . . . . (1,057,300) 0.26
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . (169,552) 0.27
-----------

Options outstanding at December 31, 1999. . . . . . . . . . 4,466,527 0.29
Granted . . . . . . . . . . . . . . . . . . . . . . . . . 4,992,725 16.35
Exercised . . . . . . . . . . . . . . . . . . . . . . . . (4,683,309) 0.53
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . (283,108) 3.62
-----------

Options outstanding at December 31, 2000. . . . . . . . . . 4,492,835 17.70
Granted . . . . . . . . . . . . . . . . . . . . . . . . . 3,160,628 14.47
Exercised . . . . . . . . . . . . . . . . . . . . . . . . (204,125) 2.75
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . (270,902) 19.92
-----------

Options outstanding at December 31, 2001. . . . . . . . . . 7,178,436 16.63
===========

At December 31, 2001 a total of 4,400,220 shares were available for grant under
the Company's stock option plans.

The following table summarizes information about stock options outstanding and
exercisable at December 31, 2001:

Options Outstanding and Exercisable
----------------------------------------------------
Weighted-Average Weighted-
Remaining Average
Contractual Life Exercise
Exercise Price Range Number (Years) Price
------------------ ----------------- -----------

0.01-$0.01 . . . . . . . . . . 21,125 3.8 $0.01
0.27-$0.40 . . . . . . . . . . 479,179 6.6 0.28
1.33-$1.33 . . . . . . . . . . 84,617 8.0 1.33
5.72-$8.58 . . . . . . . . . . 114,845 5.5 5.93
8.69-$13.00. . . . . . . . . . 1,296,794 8.8 10.83
13.40-$20.00 . . . . . . . . . 3,866,571 7.6 16.28
20.13-$29.75 . . . . . . . . . 533,013 8.7 22.26
31.38-$47.00 . . . . . . . . . 782,292 8.4 37.84
----------------
7,178,436 7.9 16.63
================

At December 31, 2001, a total of 1,200,876 shares of common stock purchased
under the 1994, 1997 and 2000 Plans were subject to repurchase by the Company at
a weighted average price of $0.72 per share. The weighted-average grant date
fair value of options granted during the years ended December 31, 2001, 2000 and
1999 was $8.86, $10.01 and $0.08 per share, respectively.

Deferred Stock Compensation. During the period from January 1, 1999 through
December 31, 2001, the Company recorded $29.9 million of deferred stock
compensation in accordance with APB 25, SFAS 123 and EITF 96-18, related to
stock options granted to consultants and employees. For options granted to
consultants, the Company determined the fair value of the options using the
Black-Scholes option pricing model with the following weighted-average
assumptions: (a) no dividends; (b) expected volatility of 87%, 79% and 70% for
2001, 2000 and 1999, respectively; (c) risk-free interest rate of 5.70% for 2001
and 5.75% for 2000 and 1999; and (d) expected lives of 10 years for 2001 and 4
years for 2000 and 1999. Stock compensation expense is being recognized in
accordance with FIN 28 over the vesting periods of the related options,
generally four years. The Company recognized stock compensation expense of $7.4
million, $14.0 million and $3.5 million for the years ended December 31, 2001,
2000 and 1999, respectively.

Stock Purchase Plan. In January 2000, the Company adopted the 2000 Employee
Stock Purchase Plan (the "ESPP"). The ESPP allows for qualified employees (as
defined) to purchase shares of the Company's common stock at a price equal to
the lower of 85% of the closing price at the beginning of the offering period or
85% of the closing price at the end of each purchase period. The Company issued
224,780 and 88,683 shares of common stock during 2001 and 2000, respectively,
pursuant to the ESPP at an average price per share of $10.56 and $11.05,
respectively. The weighted average per share fair value for shares purchased
pursuant to the ESPP during 2001 and 2000, was $6.60 and $5.08, respectively. A
total of 300,000 shares of common stock were initially authorized for issuance
under the ESPP. On the last day of each year for ten years, starting in 2000,
the share reserve will automatically be increased by a number of shares equal to
the greater of: 0.75% of the Company's outstanding shares on a fully-diluted
basis; or that number of shares subject to stock awards granted under the plan
during the prior 12-month period.

Pro Forma Information. The estimated fair value of stock based awards to
employees is amortized over the vesting period for options and the six-month
purchase period for stock purchases under the ESPP. Pro forma information
pursuant to SFAS 123 is as follows (in thousands, except per share amounts):

Year Ended December 31,
-------------------------------
2001 2000 1999
--------- --------- ---------

Net loss:
As reported. . . . . . . . . . . . . . $(71,186) $(75,311) $(18,721)
Pro forma . . . . . . . . . . . . . . (89,432) (86,647) (18,776)

Net loss per share (basic and diluted):
As reported. . . . . . . . . . . . . . $ (1.53) $ (1.78) $ (4.60)
Pro forma. . . . . . . . . . . . . . . (1.92) (2.04) (4.62)

Since options vest over several years and additional option grants are expected
to be made in future years, the pro forma impact on the results of operations
for the three years ended December 31, 2001 is not representative of the pro
forma effects on the results of operations for future periods.

For grants in 1999, the fair value of each option grant was estimated on the
date of grant using the minimum value method with the following assumptions: 0%
dividend yield; risk-free interest rates of 5.59% for 1999 and expected life of
5 years. For grants made in 2000 prior to the initial public offering, the
minimum value method was used with the following assumptions: 0% dividend yield,
risk-free interest rate of 6.51% and expected lives of 5 years. For grants in
made 2000 subsequent to the initial public offering, the fair value of each
option grant was determined using the Black-Scholes option pricing model with
the following assumptions: volatility of 87%, 0% dividend yield; risk-free
interest rate of 5.70% and expected lives of 4 years. For grants in made 2001,
the fair value of each option grant was determined using the Black-Scholes
option pricing model with the following assumptions: volatility of 88%, 0%
dividend yield; risk-free interest rate of 4.16% and expected lives of 4 years.
The fair value for shares purchased pursuant to the ESPP was determined using
the Black-Scholes option pricing model with the following assumptions:
volatility of 88% and 87% for 2001 and 2000, respectively, 0% dividend yield,
risk-free interest rate of 5.74% and 6.08% for 2001 and 2000, respectively, and
expected lives of 6 months.

401(k) Plan

The Company sponsors a 401(k) Retirement Plan whereby eligible employees may
elect to contribute up to the lesser of 20% of their annual compensation or the
statutorily prescribed annual limit allowable under Internal Revenue Service
regulations. The 401(k) Plan permits the Company to make additional matching
contributions on behalf of all participants. Through December 31, 2001, the
Company has not made any matching contributions.

NOTE 11 INCOME TAXES

Due to operating losses and the inability to recognize the benefits there from,
there is no provision for income taxes for the years ended December 31, 2001,
2000, and 1999.

At December 31, 2001, the Company had federal and California net operating loss
carryforwards of approximately $99.0 million and $50.0 million, respectively,
which expire at various dates beginning in the year 2005. The Company also had
federal and California research and development credit carryforwards of
approximately $3.0 million in each jurisdiction, which expire at various dates
beginning in the year 2018.

Under the Internal Revenue Code, certain substantial changes in the Company's
ownership could result in an annual limitation on the amount of net operating
loss carryforwards which can be utilized in future years to offset future
taxable income. The annual limitation may result in the expiration of net
operating losses and credits before utilization.

Deferred tax assets and liabilities reflect the net tax effects of net operating
loss and credit carryforwards and of temporary differences between the carrying
amounts of assets and liabilities for financial reporting and the amounts used
for income tax purposes.

The Company's deferred tax assets and liabilities consist of the following (in
thousands):

December 31,
-------------------
2001 2000
--------- ---------

Deferred tax assets:
Net operating loss carryforwards. . . . . . . . . . . . . . $ 36,700 $ 40,138
Capitalized start-up and organizational costs, net. . . . . 787 1,371
Tax credit carryforwards. . . . . . . . . . . . . . . . . . 5,070 4,815
Capitalized reasearch and development costs . . . . . . . . 3,587 1,694
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,710 (1,883)
--------- ---------
Total deferred tax assets. . . . . . . . . . . . . . . . 55,854 46,135
Valuation allowance . . . . . . . . . . . . . . . . . . . . (53,004) (44,107)
--------- ---------
Net deferred tax assets. . . . . . . . . . . . . . . . . $ 2,850 $ 2,028
Deferred tax liabilities:
Purchased intangibles . . . . . . . . . . . . . . . . . . . (2,850) (2,028)
--------- ---------
Net deferred taxes . . . . . . . . . . . . . . . . . . . $ - $ -
========= =========

Realization of deferred tax assets is dependent upon future earnings, if any,
the timing and amount of which are uncertain. Accordingly, the net deferred tax
assets have been fully offset by a valuation allowance. The valuation allowance
increased by $8.9 million, $27.8 million and $4.7 million during 2001, 2000 and
1999 respectively.

NOTE 12 COMMITMENTS

Leases

The Company leases office and research space and certain equipment under
operating and capital leases that expire at various dates through the year 2017.
Certain operating leases contain renewal provisions and require the Company to
pay other expenses. Future minimum lease payments under operating and capital
leases are as follows (in thousands):

Operating Capital
Year Ending December 31, Leases Leases
- -------------------------- --------------- -------

2002. . . . . . . . . . . . . . . . . . . . . . . . $ 7,102 $ 6,625
2003. . . . . . . . . . . . . . . . . . . . . . . . 6,485 6,625
2004. . . . . . . . . . . . . . . . . . . . . . . . 6,064 4,241
2005. . . . . . . . . . . . . . . . . . . . . . . . 5,433 1,313
2006. . . . . . . . . . . . . . . . . . . . . . . . 4,892 -
Thereafter. . . . . . . . . . . . . . . . . . . . 51,182 -
---------------- -------
$81,158 18,804
================
Less amount representing interest . . . . . . . . (1,713)
--------
Present value of minimum lease payments.. . . . . 17,091
Less current portion. . . . . . . . . . . . . . . (5,947)
--------
Long-term portion . . . . . . . . . . . . . . . . $11,144
========

Rent expense under noncancellable operating leases was approximately $5.8
million, $3.9 million and $1.5 million for the years ended December 31, 2001,
2000 and 1999, respectively.

In September 2000, the Company entered into a master lease agreement (the
"Master Lease") with a third party lessor for a secured equipment lease line of
up to $13.1 million. The Master Lease provides for quarterly borrowings that
expire in June 2001. Each quarterly borrowing has a 3.5 year repayment term. At
December 31, 2001, $9.1 million was outstanding under the Master Lease. Under
the Master Lease, the Company is subject to certain financial covenants. As of
December 31, 2001, the Company was in compliance with these covenants. During
2000, the Company entered into an equipment sale-leaseback agreement under the
Master Lease resulting in proceeds to the Company of approximately $9.8 million.

During April 2001, the Company entered into a master lease agreement with a
third-party lessor for a secured equipment lease line of credit of up to $12.0
million, which expires on March 31, 2002. The master lease agreement provides
for a periodic delivery structure. Each delivery has a payment term of 36 or 48
months depending on the type of the equipment purchased under the lease. At
December 31, 2001, $8.0 million was outstanding under the equipment lease line
of credit. Under the master lease agreement, the Company is subject to certain
financial covenants. As of December 31, 2001, the Company was in compliance with
all such covenants.

Licensing Agreements

The Company has entered into several licensing agreements with various
universities and institutions under which it obtained exclusive rights to
certain patent, patent applications and other technology. Future payments
pursuant to these agreements are as follows (in thousands):

Year Ending December 31, 2001
- ------------------------------
2002 . . . . . . . . . . . . . . $1,454
2003 . . . . . . . . . . . . . . 1,403
2004 . . . . . . . . . . . . . . 954
2005 . . . . . . . . . . . . . . 953
2006 . . . . . . . . . . . . . . 954
Thereafter . . . . . . . . . . 954
-------
$6,672
=======

In addition to the payments summarized above, the Company is required to make
royalty payments based upon a percentage of net sales of any products or
services developed from certain of the licensed technologies and milestone
payments upon the occurrence of certain events as defined by the related
agreements. No such royalties or milestones have been paid through December 31,
2001.

Consulting Agreements

The Company has entered into consulting agreements with certain scientific
collaborators including members of the Scientific Advisory Board. All existing
agreements are cancelable within 30 to 60 days. Total consulting expense
incurred under these agreements during the years ended December 31, 2001, 2000
and 1999 was $53,400, $168,838 and $352,000, respectively.

NOTE 13 QUARTERLY FINANCIAL DATA (UNAUDITED)

The following tables summarize the unaudited quarterly financial data for the
last two fiscal years (in thousands, except per share data):

Fiscal 2001 Quarter Ended
---------------------------------------------------------------
March 31, June 30,(1) September 30, December 31,(2)
--------------- ------------ -------------- ---------------

Total revenues . . . . . . . . . . . $ 7,734 $ 8,551 $ 11,928 $ 12,793
Loss from operations . . . . . . . . . . (14,391) (24,879) (17,296) (18,748)
Net loss .. . . . . . . . . (12,719) (23,708) (16,490) (18,269)
Basic and diluted net loss per share . $ (0.29) $ (0.52) $ (0.35) $ (0.38)

Fiscal 2000 Quarter Ended
---------------------------------------------------------------
March 31, June 30, September 30, December 31,(1)
--------------- ------------ -------------- ---------------
Total revenues . . . . . . . . . . . . . $ 5,951 $ 5,616 $ 6,118 $ 7,074
Loss from operations . . . . . . . . . . (7,277) (12,670) (11,155) (49,879)
Net loss .. . . . . . . . . (7,287) (10,972) (8,999) (48,052)
Basic and diluted net loss per share . $ (1.23) $ (0.32) $ (0.22) $ (1.13)

(1) Includes a charge of $6.7 million relating to acquired in-process research
and development recorded in connection with the acquisition of Artemis.
(2) Includes a charge of $2.8 million relating to impairment of goodwill
recorded in connection with the acquisition of Genomica.
(3) Includes a charge of $38.1 million relating to acquired in-process research
and development recorded in connection with the acquisition of Agritope.

ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

On December 14, 2001, the Company filed a Current Report on Form 8-K announcing
the dismissal of PricewaterhouseCoopers LLP ("PwC") as the independent
accountants of the Company and the appointment of Ernst & Young LLP as its
independent auditors. The decision to change independent accountants was
approved by the Audit Committee under authority granted by the Board of
Directors of the Company.

The independent accountants' reports on the Company's financial statements for
each of the fiscal years ended December 31, 2000 and 1999 did not contain an
adverse opinion or disclaimer of opinion, nor were the reports qualified or
modified as to uncertainty, audit scope or accounting principles.

In connection with its audits for the fiscal years ended December 31, 2000 and
1999 and through December 14, 2001, there were no disagreements as defined by
Item 304 (a)(1)(iv) of Regulation S-K between the Company and PwC on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements if not resolved to the
satisfaction of PwC, would have caused PwC to make reference thereto in their
reports on the financial statements for such years.

During the fiscal years ended December 31, 2000 and 1999, and through December
14, 2001, there were no reportable events as that term is defined in Item 304
(a)(1)(v) of Regulation S-K.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information required by this item will be contained under the captions "Election
of Class III Directors", "Section 16(a) Beneficial Ownership Reporting
Compliance" and "Executive Compensation" in Exelixis' definitive proxy statement
with respect to our 2002 Annual Meeting of Stockholders to be filed with the SEC
(the "Proxy Statement"), and is hereby incorporated by reference thereto.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item will be contained in the Proxy Statement
under the caption "Executive Compensation," and is hereby incorporated by
reference thereto.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item will be contained in the Proxy Statement
under the caption "Security Ownership of Certain Beneficial Owners and
Management," and is hereby incorporated by reference thereto.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item will be contained in the Proxy Statement
under the caption "Certain Transactions," and is hereby incorporated by
reference thereto.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are being filed as part of this report:

(1) The following financial statements of the Company and the Report of the
Independent Auditors are included in Part II, Item 8:
Page
----
Report of Ernst & Young LLP, Independent Auditors 37
Report of PricewaterhouseCoopers LLP, Independent Accountants 38
Consolidated Balance Sheets 39
Consolidated Statements of Operations 40
Consolidated Statements of Stockholders' Equity (Deficit) 41
Consolidated Statements of Cash Flows 42
Notes to Consolidated Financial Statements 43

(2) All financial statement schedules are omitted because the information
is inapplicable or presented in the Consolidated Financial Statements or
notes.

(3) The items listed on the Index to Exhibits on pages 66 and 67 are
incorporated herein by reference.

(b) Reports on Form 8-K.

Exelixis filed a Current Report on Form 8-K on November 14, 2001, reporting the
Company's financial results for the third quarter of fiscal year 2001 pursuant
to Item 9 of Form 8-K.

Exelixis filed a Current Report on Form 8-K on December 20, 2001, announcing a
change in the Company's auditors to Ernst & Young, LLP.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of South San Francisco, State of California, on March
19, 2002.

EXELIXIS, INC.

By: /s/George A. Scangos, Ph.D.
--------------------------------------
George A. Scangos, Ph.D.
President and Chief Executive Officer

Know All Persons by these Presents, that each person whose signature
appears below constitutes and appoints George A. Scangos and Glen Y. Sato, and
each or any one of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this report on Form 10-K, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitutes or substitute, may lawfully do or cause to be
done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report on Form 10-K has been signed by the following persons on
behalf of the Registrant and of the capacities and on the dates indicated.

Signature Title Date

/s/George A. Scangos, Ph.D.
- ------------------------------------
George A. Scangos, Ph.D. President, Chief Executive Officer March 19, 2002
and Director
(Principal Executive Officer)

/s/Glen Y. Sato
- ------------------------------------
Glen Y. Sato Chief Financial Officer March 19, 2002
(Principal Financial/Accounting Officer)

/s/Stelios Papadopoulos, Ph.D.
- ------------------------------------
Stelios Papadopoulos, Ph.D. Chairman of the Board of Directors March 19, 2002

/s/Charles Cohen, Ph.D.
- ------------------------------------
Charles Cohen, Ph.D. Director March 19, 2002

/s/Geoffrey Duyk, M.D., Ph.D.
- ------------------------------------
Geoffrey Duyk, M.D., Ph.D. Director March 19, 2002

/s/Jason S. Fisherman, M.D.
- ------------------------------------
Jason S. Fisherman, M.D. Director March 19, 2002

/s/Jean Francois Formela, M.D.
- ------------------------------------
Jean-Francois Formela, M.D. Director March 19, 2002

/s/Vincent Marchesi, M.D., Ph.D.
- ------------------------------------
Vincent Marchesi, M.D., Ph.D. Director March 19, 2002

/s/Peter Stadler, Ph.D.
- ------------------------------------
Peter Stadler, Ph.D Director March 19, 2002

/s/Lance Willsey, M.D.
- ------------------------------------
Lance Willsey, M.D. Director March 19, 2002

INDEX TO EXHIBITS

Exhibit
Number Description

2.1 Agreement and Plan of Merger and Reorganization, dated September 7,
2000, among Exelixis, Athens Acquisition Corp. and Agritope, Inc.
(Incorporated by reference to Annex A of Exelixis' Registration
Statement on Form S-4 (No. 333-47710), filed with the SEC on October
11, 2000, as amended).

2.2 Share Exchange and Assignment Agreement, dated April 23, 2001, by and
among Exelixis, Inc. and among Exelixis, Inc. and the Artemis
stockholders named therein (5)

2.3 Share Exchange and Assignment Agreement, dated April 23, 2001, by and
among Exelixis, Inc. and the Artemis stockholders named therein. (4)

2.4 Agreement and Plan of Merger and Reorganization, dated as of November
19, 2001, by and among the Registrant, Bluegreen Acquisition Sub, Inc.
and Genomica Corporation, previously was filed as an annex to the
Registrant's registration statement on Form S-4, as amended
(Registration No. 333-74120).

3.1 Amended and Restated Certificate of Incorporation of Exelixis (1).

3.2 Amended and Restated Bylaws of Exelixis (1)

4.1 Specimen Common Stock Certificate (1)

4.2 Fourth Amended and Restated Registration Rights Agreement, dated
February 26, 1999 among Exelixis and Certain Stockholders of Exelixis
(1)

4.3 Warrant, dated August 17, 1998, to purchase 125,796 post-split shares
of Exelixis Series A preferred stock in favor of Comdisco, Inc. (1).

4.4 Warrant, dated August 17, 1998, to purchase 15,365 post-split shares
of Exelixis Series A preferred stock in favor of Greg Stento (1).

4.5 Warrant, dated January 24, 1996, to purchase 267,857 post-split shares
of Exelixis Series B convertible stock in favor of MMC/GATX
Partnership No. 1 (1)

4.6 Warrant, dated September 25, 1997, to purchase 63,750 post-split
shares of Exelixis common stock in favor of MMC/GATX Partnership No. 1
(1).

4.7 Warrant, dated November 15, 1999, to purchase 9,000 post-split shares
of Exelixis common stock in favor of Bristow Investments, L.P. (1).

4.8 Warrant, dated November 15, 1999, to purchase 101,250 post-split
shares of Exelixis common stock in favor of Slough Estates USA, Inc.
(1).

4.9 Warrant, dated November 15, 1999, to purchase 2,250 post-split shares
of Exelixis common stock in favor of Laurence and Magdalena Shushan
Trust (1).

4.10 Warrant, dated April 1, 2000, to purchase 70,875 shares of Exelixis
common stock in favor of Slough Estates USA, Inc. (2).

4.11 Warrant, dated April 1, 2000, to purchase 6,300 shares of Exelixis
common stock in favor of Bristow Investments, L.P. (2).

4.12 Warrant, dated April 1, 2000, to purchase 1,575 shares of Exelixis
common stock in favor of Laurence and Magdalena Shushan Family Trust
(2).

4.13 Form of Convertible Promissory Note, dated May 22, by and between
Exelixis, Inc. and Protein Design Labs, Inc. (6).

4.14 Form of Note Purchase Agreement, dated May 22, by and between Exelixis,
Inc.and Protein Design Labs, Inc. (6)

10.1 Form of Indemnity Agreement (1).

10.2* 1994 Employee, Director and Consultant Stock Plan (1).

10.3* 1997 Equity Incentive Plan (1).

10.4* 2000 Equity Incentive Plan (1).

10.5* 2000 Non-Employee Directors' Stock Option Plan (1).

10.6* 2000 Employee Stock Purchase Plan (1).

10.7 Agritope, Inc. 1997 Stock Award Plan. (Incorporated by reference to
Exelixis' Registration Statement on Form S-8 (No. 333-52434), as filed
with the SEC on December 21, 2000).

10.8*** Collaboration Agreement, dated December 16, 1999, between Exelixis,
Bayer Corporation and Genoptera LLC (1).

10.9*** Operating Agreement, dated December 15, 1999, between Exelixis,
Bayer Corporation and Genoptera LLC (1)

10.10 Cooperation Agreement, dated September 15, 1998, between Exelixis and
Artemis Pharmaceuticals GmbH (1).

10.11 Sublease Agreement, dated June 1, 1997, between Arris Pharmaceutical
Corporation and Exelixis (1).

10.12 Lease, dated May 12, 1999, between Britannia Pointe Grand Limited
Partnership and Exelixis (1).

10.13 First Amendment to Lease, dated March 29, 2000, between Britannia
Pointe Grand Limited Partnership and Exelixis (2).

10.14 Master Lease Agreement, dated August 2, 2000, between Comdisco, Inc,
and Exelixis (3).

10.15 Addendum dated as of August 31, 2000, to the Master Lease Agreement
(3).

10.16 Amendment No. 1 to the Master Lease Agreement, dated September 6,
2000, between Comdisco, Inc. and Exelixis (3).

10.17 Purchase-Leaseback Agreement, dated September 8, 2000, between
Comdisco, Inc. and Exelixis (3).

10.18 Master Services Agreement, dated November 15, 1999, between Artemis
Pharmaceuticals GmbH and Exelixis (1).

10.19*** Research Collaboration and Technological Transfer Agreement, dated
September 14, 1999, between Bristol-Myers Squibb and Exelixis (1).

10.20*** Corporate Collaboration Agreement, dated February 26, 1999, between
Pharmacia & Upjohn AB and Exelixis (1).

10.21*** Amendment to Corporate Collaboration Agreement, dated October,
1999, between Pharmacia & Upjohn AB and Exelixis (1).

10.22*** Mechanism of Action Collaboration Agreement, dated July 11, 2000
between Exelixis and Dow AgroSciences LLC (Incorporated by reference
from Exelixis' Quarterly Report on Form 10-Q, filed with the SEC on
August 4, 2000).

10.23 Asset Purchase Agreement, dated July 11, 1999, between MetaXen/Xenova
and Exelixis (1).

10.24* Employment Agreement, dated September 13, 1996, between George
Scangos, Ph.D. and Exelixis (1).

10.25* Employment Agreement, dated April 14, 1997, between Geoffrey Duyk,
M.D., Ph.D. and Exelixis (1).

10.26* Employment Agreement, dated October 19, 1999, between Glen Y. Sato,
Chief Financial Officer and Vice President, Legal Affairs and Exelixis
(1).

10.27 Master Lease Agreement, dated April 9, 2001, between GE Capital
Corporation and Exelixis, Inc. (7)

10.28*** Collaboration Agreement, dated May 22, 2001, by and between
Exelixis, Inc. and Protein Design Labs, Inc. (6)

10.29 Form of Stock Purchase Agreement, dated as of July 17, 2001, by and
between Exelixis, Inc. and Bristol-Myers Squibb Company (8)

10.30*** Cancer Collaboration Agreement, dated July 17, 2001, by and between
Exelixis, Inc. and Bristol-Myers Squibb Company (8)

10.31*** License Agreement, dated July 17, 2001, by and between Exelixis,
Inc. and Bristol-Myers Squibb Company (8)

21.1 Subsidiaries of Exelixis.

23.1 Consent of Independent Auditors.

23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants

24.1 Power of Attorney (contained on signature page).

*** Confidential treatment granted for certain portions of this exhibit.

* Management contract or compensatory plan.

1. Incorporated by reference to Exelixis' Registration Statement on Form
S-1 (No. 333-30978), filed with the SEC on February 7, 2000, as
amended.
2. Incorporated by reference from Exelixis' Quarterly Report on Form
10-Q, filed with the SEC on May 15, 2000.
3. Incorporated by reference from Exelixis' Quarterly Report on Form
10-Q, filed with the SEC on November 14, 2000.
4. Filed with Exelixis' Item 2 Current Report on Form 8-K filed on May
15, 2001 and incorporated herein by reference.
5. Filed with Exelixis' Item 2 Current Report on Form 8-K filed on May
15, 2001 and incorporated herein by reference.
6. Filed with Exelixis' Quarterly Report on Form 10-Q for the quarter
ended June 30, 2001, as amended, and incorporated herein by reference.
7. Filed with Exelixis' Quarterly Report on Form 10-Q for the quarter
ended March 31, 2001 and incorporated herein by reference.
8. Filed with Exelixis' Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001 and incorporated herein by reference.